A credit score is a statistical number that evaluates the creditworthiness of an investor or consumer. It is based on the person’s credit history. Today, lenders focus on creditworthiness to measure the likelihood that a person will pay off his debts. A person’s credit score can range from 300 to 900, and the higher the score, the more financially capable the person is considered.
Understand credit: credit is the ability to borrow money or access goods or services knowing that the borrower will pay later. Lenders (including lenders, merchants, and service providers) make loans to individuals or businesses based on their confidence that the borrower can be trusted to repay the amount they have borrowed, as well as any financing fees at which they can incur.
Understanding Credit Scores –These points will help lenders determine if a loan application can be approved and what loan terms should be offered to the borrower. The score is generated by an algorithm that uses information from the person’s credit reports that summarize their credit history.
One of the most common factors used to calculate creditworthiness is the variety of credit accounts. However, it is generally overlooked by most consumers. Keeping different types of credit accounts, such as mortgages, personal loans, and credit cards, tells lenders that it is possible to process different types of debt at the same time. It also helps them get a clearer picture of the borrower’s finances and his ability to repay the debt.
A less diversified loan portfolio won’t necessarily result in lower scores, but the more types of loans you have, the better, as long as all repayments are made on time. Credit composition accounts for nearly 10% of credit scores and could be a factor in getting a better score.