One of the biggest concerns of bank users is their score or credit score. After an economic slump, financial mistakes and bad decisions or investments, this indicator could deteriorate and access to credit could be greatly affected.
The credit score is an algorithm that indicates the probability of compliance of a person in the payment of their financial obligations.
It is used by companies and financial intermediation entities when evaluating a request for financing from a user that is duly registered in the credit bureaus.
A low credit score is unattractive for banks because it reflects that it is very likely to fail to comply with payment commitments. Click to tweet
A low credit score is unattractive to banks because it reflects that it is very likely that the user fails to pay the commitments he intends to acquire.
How to know if my credit score is good?
In the case of DataCrédito, the ratings range from 150 points, considered a negative or bad rating, to 950 points, which is the highest score. In addition, as seen in the image gives colors associated with the various numbers; red, yellow, green, gold and blue, the latter considered a platinium credit rating, with a minimum of risk.
In this table, a rating of around 670 points, located in the green category (cataloged as prime or preferential), would be considered acceptable.
While in the case of TransUnion the different levels of risk are presented through consonants: A, B, C, D, E and F. These letters refer to a range of scores ranging from 100 to 713 points, as It is seen in the image, extracted from a bureau report.
A pretty attractive note should be between the A and B ranges
Now, it is important to remember that the decision making for or against a credit application can vary, regardless of your credit score, according to the internal credit policy of each financial institution. Since, each bank has privileged information of its clients including its ability to pay.
“The credit score is an input for the decision making of financial institutions, but it is not the only one, nor the final one”, clarifies the financial analyst Alejandro Fernández W.
“The higher the score, the lower the risk”.
Knowing this, the question arises: how can I raise my credit score?
In the Dominican Republic we do not have a model to determine how to increase the score, however, there is the international model of the Fair Isaac Corporation, called “FICO” score, which helps us to have an idea of how to achieve this goal.
According to this model, the most important element to take into account, equivalent to 35% of the percentage to increase the credit score, is the user’s history.
That is, it takes into account the number of times it has had recurrence to default and how recent it is. Or if the banking client had or owns any debt that is written off or legal.
The second factor, which corresponds to 30%, are the amounts owed by the consumer. The level of use of the credit lines is analyzed. For example, if you have a card and use 99% of the limit, it is considered to have a higher level of risk than someone who uses only 30% or less than 50%.
Third, for 15%, you find the seniority of the credit history. It is not the same someone who has little credit history, that someone who has years reporting in the bureaus.
Meanwhile, that 10% is attributed to the mixture or combination of credits, this is to have a credit card and installment loan at the same time.