If you have applied for a loan or credit card then you have probably received a letter in the mail stating that a credit check has been made and based on it you have received a credit score. Most people probably care most about whether they are granted their application or not and therefore may not have spent as much time getting into the letter that came from Misnote or the like. If you are one of those who are tired of rejecting loan and credit applications, or are just a little above average interested in having a good overview of your finances, then you can read more here about what credit score actually is.
Who makes credit ratings and how?
Companies may have several reasons for checking your credit rating, but the most common reason is that you have applied for a loan or some other type of credit. Other causes may be changes to a power or mobile subscription, as well as when shopping on the Internet. The purpose is to calculate how much risk it entails to grant you credit, ie look at the statistical probability that you will be able to repay the money you borrow or the bills you will receive. After the credit check, you will receive a credit score, usually between 0 and 100, a low score indicating greater risk of a person making a payment note, while a high score indicating a low risk.
The credit score value itself is based on an analysis of historical information about all creditworthy individuals to identify characteristics of both those who have made payment claims and those who have not. You are compared to people in the same age group and with the same conditions. Based on that, it should be possible to say something about your ability to pay. Most companies use Misnote Credit AS (formerly AAA Soliditet AS), Oxforian AS and Evry AS to do credit assessments. You should always receive a copy of the letter stating who performed the credit assessment and who it is on behalf of. It is not a variable alone that determines a person’s credit risk, advanced statistical models are behind the calculations. It is therefore a combination of a number of different variables that are the basis.
Every time a person applies for credit, the lender risks incurring a large expense if the person is unable to pay for it. For this reason, credit assessments are used to help the lender decide whether or not to apply for a loan or credit. The lender has usually set a limit on what score the creditor must get in order to be approved, and with the help of the credit rating from one of the companies mentioned earlier, they will come to a decision. It is not uncommon that the limit on what determines whether you are rejected or not varies from one lender to another. This is due to varying credit policies. In addition, some companies have also added their own requirements for a person to be granted an application. Credit assessments should benefit both the person applying for credit and the company that offers it. The company does not want to take on an unnecessarily large risk and anyone who applies for a loan or any other type of credit would prefer not to end up with a loan or expense that becomes impossible to service.
What can give you a low score?
It is not a relationship alone that will result in a low score. The measurement is mathematically calculated and is a combination of all information gathered about you compared to people who share the same characteristics. The exception is if you have a serious payment note, such as insolvency or debt settlement. If you have unresolved payment notes, that is, debt collection or similar that has not been met, this will also adversely affect your score. In addition, a scoring model will make use of available public information about your personal finances, such as income and wealth. If you have large fluctuations in income, this is statistically an indication of an unstable economy. Other factors that play a role include, for example, tax class and business interests, singles and individuals who own an individual enterprise more often incur payment claims statistically.
In a scoring model where the maximum score value is 100, score values above 19 will usually be accepted. As mentioned, some lenders have their own rules and criteria so many choose and only reject people with a score of 10 or lower. On average, a person with a score of 19 has about 3.5% probability of incurring a payment note over the next 12 months. That is, it is 96.5% likely that you will not receive a payment note during the same period.
How to Improve Your Credit Score
Since a credit score is calculated from publicly available data on your personal finances, you can’t cheat, the only way you can make sure you don’t get a low credit score is to keep track of finances. The most important thing is to have control over debt and expenses and to ensure that your income always covers these. If you do, you will be ahead and not incur any payment remarks. Unfortunately, there are no shortcuts, it can be hard and tedious work, but keep in mind that what is positive about your finances will also positively affect your credit rating. If you make good money now, you can reap the benefits later.
If you stay away from credit cards and don’t apply for credit you really don’t need then you will do just fine. Learn how to treat your personal finances like a businessman treating their company so you will not receive a surprise letter with a negative message from one of the credit rating agencies. Simply put, you will get a better credit score, and have a greater chance of getting granted loans and credit, once you have proven that you have good ability to pay.