What Is A Good Risk Score? - CREDIT SCORE
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CREDIT SCORE: What is a good risk score?
There is no one “good” or “bad” risk score because there are many different risk score models with many different ranges. Companies also consider risk scores differently depending on the amount of risk they will accept and their pricing options.
Each model has its own unique range of scores. In some models, a higher score represents lower risk. In other models, a low score represents low risk. Even companies that use the same risk score model may have different lending criteria, so a “good” score for one company may not be for another.
While a risk score may be an important part of the lending process, the number by itself is not helpful in understanding a lender’s decision. However, the risk factors that most influenced the risk score at the time it was calculated are very helpful. The risk factor statements describe Not long ago, companies used simple work sheets to review credit reports and application information. By studying repayment patterns, they were able to identify elements in credit histories and sometimes other application information that signaled greater risk. r>
For example, using a paper-and-pencil formula, a company may have denied a credit application because of a late payment, regardless of other information in the applicant’s credit history. Automated risk score models not only consider the number of late payments, but also balance the negative information against all other positive details used in the calculation. Risk scores also help users make good decisions even though credit histories can be very different. For instance, risk can be assessed on a very short credit history with only one or two accounts or on a credit history with many accounts that have been open for a long time. The issues that indicate risk for a new credit user are not necessarily the same as those for an experienced credit user with a long history. Risk score models balance such differences.
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