Credit Card Guide
What is a Credit Bureau Risk Score?
There are 3 major credit bureaus that hold information about American consumers and their credit scores. A credit bureau risk score is a type of credit score which is calculated using only the information held by the major credit bureaus. It will give lenders a snapshot of a consumer's credit risk at any point in time allowing lenders to decide the likelihood of a consumer being able to repay debts before entering into a loan agreement with them.
There are thousands of credit bureaus across the United States of America, but the majority of lenders do not have time to refer to them all when making a decision on a loan application. Instead, they will use the three major bureaus: Experian, Equifax, and Transunion. It is widely agreed that they all have a reputation for being approximately 99% accurate.
How Are Credit Bureau Risk Scores Calculated?
A credit bureau risk score is calculated using only the information held by that particular bureau in regard to the potential borrower. These include reports on payment history, amount still owed, length of credit history, types of credit in use, and number of new applications made. These pieces of information are used to calculate a credit score which shows how likely it is that the potential borrower can afford to repay more credit. Lenders use this information to decide how much risk of non-payment is involved in lending money to individuals.
A lower score indicates a higher risk while a high score indicates that the borrower has the means to repay additional loans. The three major bureaus all use slightly different methods of calculation and may even hold different information pertaining to the individual applying for credit. It is because of this that each bureau may return a slightly different credit bureau risk score. This is why the lender will usually get credit scores from all three major credit bureaus and take an average of the three scores in order to make decision.
Are There Other Risk Factors Taken Into Account?
A credit bureau risk score will range between 350 and 850. The higher the score, the better credit you have and therefore the less risk you pose to a lender. Generally a score of above 720 is considered as good. If you have a low score then you are considered high risk and will find it difficult to obtain credit. There are a number of factors which along with a low credit score flag you as a risk to lenders.
One of these factors is whether or not you have only made minimum payments each month on your credit card accounts. Several new applications for credit can also suggest that you pose a risk, as many people seek additional credit in times of financial difficulty. Lenders are also uncomfortable with several address changes. They much prefer to see a stable address history because this often means that the borrower has a more stable lifestyle making them at a lower risk of bankruptcy.
Can You Improve a Low Credit Bureau Risk Score?
If for any reason you do have a low credit bureau risk score, it is possible to improve it, although it will take several months, or even years, depending on the state of your financial affairs. Credit scores can be improved by making regular payments, and ensuring these payments are above the minimum requested payment. If you have many outstanding debts and credit cards, it is worth trying to reduce or pay off some of your debt in order to increase your credit score. If you know that you have a low credit score, it is also worth avoiding making new applications for credit for a while to allow your credit score to improve.
In conclusion, the three major credit bureaus hold various pieces of information relating to a consumers financial status and creditworthiness. Lenders can request a credit bureau risk score in order to decide whether or not they should risk lending money to someone.
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