Credit scoring is a computer program based on algorithms that helps entities make decisions based on the evaluation of financial and personal data collected from a specific client. Through the result or score obtained, the approval of a financing operation will be recommended or not.
With this artificial intelligence system, risks are analyzed, and responses are homogenized without having any subjective or emotional biases that distort the information to avoid making wrong decisions and, ultimately, that the operation leads to a default situation. In this way, artificial intelligence replaces the traditional risk assessment formula once carried out by bank employees themselves.
A credit score consists of studying the percentage of income that the user receives in relation to pending payments or the indebtedness rate based on equity or working life, among other variables. Once these variables are entered, the system concludes whether there is a real risk and the user’s ability to pay.
Advantages of Having a Positive Score
If banks detect a customer with a positive score, they will soon knock on your door to offer you credit cards and even pre-granted loans. Also, suppose it is the citizen who goes to the entity to request a mortgage or liquidity for other purposes, he will have no problems accessing the money. The conditions will be better with lower interest rates, and the possibility of signing longer terms will be higher than in the profiles with more risk. Having positive solvency data will also benefit you when renting a house, a policy, or insurance covering future rental defaults.
Risks of a Negative Credit Score
If your scoring is low, the entity will always apply higher interests than in the opposite case. In the case of having an adverse credit history, the bank can also increase the requirements to grant the loan or require a guarantee of protection in case of default. The bank can also choose to directly deny you the money, although there are credit platforms that do lend to clients even if they have a negative score.
Improving Your Credit Score
If you have a negative financial scoring or have been blacklisted, you will always have the option to try to move forward and improve your credit history. Setting a monthly budget for expenses and income, paying your debts on time, and not exceeding your debt capacity are basic rules to keep your credit history at bay. But if your credit reputation is “tainted,” you can always try to erase the past and start from scratch.