Whenever you try to take out a loan, the financial institution will carry out a credit assessment according to the reported data and external databases. You may be approved or declined, and one of the reasons may be the credit score.
What is credit score and how does it work?
Credit Score is a statistical model for assessing the risk of default by granting credit to a consumer. The model generates a score that is the result of the consumer’s relationship with the market, being able to tell a financial institution if the consumer is a good or low payer, and helps decide whether to grant credit to the customer.
The score can vary from 0 to 1,000, and the higher the score, the lower the risk and the lower the score, the greater the risk for the company. Punctuation is influenced by several factors of consumer behavior, for example: payment of bills on time, having the dirty name, the financial relationship with companies, income range, among others, and may vary according to the statistical model of the company.
Financial institutions use credit scoring as a method to assess the risk of offering customer credit, each institution evaluates according to its internal rules.
How much does the credit score interfere with the decision?
One of the analyzes that the financial institutions perform related to the credit score is: the higher the score, the greater the chance of the applicant paying the installments, that is, the risk of offering a credit is lower.
For the consumer, the higher the credit score, the higher the probability that the credit application is approved, and the lower the score, the lower the probability of being approved.
How to improve credit score scores?
Individuals can consult their score on the Serasa website for free, and if they have a low score, they can work on improving their score.
Some tips to improve your score:
- Pay and / or negotiate all debts that are negative and / or outstanding;
- Pay bills on time;
- Update of the data in SPC and Serasa;
- Do not score appointments multiple times in a short period of time;