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Credit Score

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Definition

A credit score is a three-digit number evaluation that represents the creditworthiness of an individual. This score is typically calculated by the credit reporting agencies, such as Equifax or TransUnion in Canada, which tracks how the common population pays back debt, such as credit cards bills, bank loans, car loans and so on.

One could have different scores depending on the lending situation. For example, an auto lender might use one scoring model, while a mortgage lender might use another. Scores may vary with different ways available to calculate credit scores. However, they all are based on the information in one’s credit reports.

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LAYMEN TERMS

Credit score indicates how likely an individual is to make payments on time or fail to pay a loan. Credit scores are typically based on things like how often an individual makes payments on time and how many accounts the individual has in good order.
It is important to note that the score will never be based on personal information like one’s race, gender, religion, marital status or national origin.

HOW DOES THIS TERM APPLY TO YOU

Lenders, such as banks while giving loans and credit card companies, use credit scores to calculate the possible risk that could cause by lending money to consumers, so as to determine - who qualifies for a loan, at what interest rate, and what credit limits.

However, credit scoring is not limited to banks. Various other organizations, such as mobile phone companies, insurance companies, landlords, etc., employ the same techniques while offering sim cards, insurances and renting apartments, respectively.

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