In the United States, there are a handful of numbers that matter to people, including your telephone number, your Social Security number, your earnings, and your credit score. The latter component appears to be a surprising inclusion in the list, but it is an all-encompassing metric that says a lot about you and your business.
From a cursory perspective, a credit score is the quickest way for a lender to assess your credit risk. This unbiased measure has expedited the provision of credit which was tedious, inconsistent, and largely unfair before the use of credit reports. Of all the credit bureau scoring systems currently in use, FICO scores are the most popular.
People with good credit scores stand a higher chance of being approved for personal loans, business loans, automobile loans, mortgages, and the like. More importantly, a higher credit score is associated with improved rates. There is no better measure of an individual’s overall financial management abilities than a sound credit score.
As credit scoring models have improved, the accuracy and reliability of credit-based decisions have also improved. Credit scoring systems are 100% objective – they do not take things like nationality, marital status, gender, religion, or race into consideration. They are based purely on objective credit scoring systems.
Well-Managed Credit Bodes Well
Recent advances in credit scoring models have decreased the importance of past mistakes. The trending systems now in place monitor your recent credit history and values it more highly than your past credit history. In other words, if you have been making regular, on-time payments, and managing your credit well in recent months, this will work in your favor. Credit reports tend to evaluate a host of data for gauging your credit score. The idea is to create a holistic picture of your credit history for lenders to evaluate.
By having an accurate credit report, businesses, and individuals are more likely to receive fair offers from lenders. It is certainly possible to apply for credit with a credit score that shows that the borrower has a decreased risk of default and a solid credit history. The provision of accurate information in a credit report also opens up many unique credit products with attendant risk levels. The current credit modeling systems automatically flag people who have a propensity to manage their credit well.
Credit Scores Internationally
Outside of the US, credit scores will vary in importance. However, certain credit bureaus such as Equifax are operational in South America and 15 countries around Europe. It is important to maintain a good credit score in all countries subject to the same credit bureau. Depending on the individual country under consideration, reporting requirements may vary.
The American credit scoring system typically ranges from 300 on the low end to 850, while the Canadian credit scoring system ranges from 300 to 900. Additionally, Canada has 2 credit bureaus versus 3 for the US (Equifax, TransUnion, and Experian).
However, credit scores between the United States and the United Kingdom have little if any correlation with one another. In fact, much the same is true among most countries in the world. Across South America, credit is less of an issue since most countries on the continent are cash-based economies. There are a handful of US corporations operating with lines of credit issued to customers, but that is the exception rather than the rule.
Typically, mortgage financing across South America are much higher than they are in the United States, at rates of up to 10% +. It’s important to bear in mind that US residents or citizens who leave the country and don’t maintain a healthy credit score may have to start all over again when they return. Bad credit and no credit are essentially synonymous – they both need to be repaired.