His score of credit is a part important of his application for the loan. But you need more than payments on a term to build one good score credit. Five factors help to explain in what way the agencies of credit evaluate the information in their reports credit when calculating its score of credit staff. As better is your score in each one of these factors, the higher will be your overall credit score. These five factors main include:

  • History of payments (35%): Paying the bills and payments of the loan in time can improve the score in the history of payments.
  • Use of debt (30%): Keep low balances on their cards of credit can improve your score by use of debt.
  • History of credit/age (15%): If you have one history of credit short, you can improve your score in the history of credit by the creation of credit to demonstrate one behavior financial responsibility.
  • Consultations of credit / new verifications of credit (10%): Too many applications for credit and new accounts of credit can reduce your scores.
  • Types of credit (10%): A combination of different types of accounts of credit can help to get one score higher.

Of these five factors, the history of payments has the greatest weight, so it is so important not to forget the payments. But your total debt is very close as the second most important factor.

Because many factors affect your score of credit, trying to improve them can be quite complicated. Each factor can interact with others, so it is difficult to say exactly how much effect one action in particular (one payment late or consultation of credit, for example ) your overall score. That does not mean you should feel frustrated but will feel tempted to do so! The issues basic are applied no matter what model of scoring is used to Evaluate the data from your report of credit. Understanding these factors and following some key strategies can help to develop and maintain one credit solid.

Risk components

According to Robert et. under this method five components of credit risk are recognized:

a) Probability of Default (PI)

The Probability of Default refers to the probability that a debtor will default on its obligations to the Financial Intermediation Entity to any degree. The probability of default is based on a risk rate, a time interval, and the moment or point of time where the default event is analyzed.

b) Intensity of Default(IC)

Also known as the risk rate [9], it is a measure that allows evaluating the conditional probability of default over some time with amplitude Δt, such that there was no previous default. The Risk Rate λ (t), at time t, is defined as λ (t) Δt, it represents the probability of default between period t and Δt, conditional on there being no default between period zero and period t.

c) Loss due to Default (PDI)

The PDI estimates the loss assumed by a Financial Institution once the event of default has occurred; It corresponds to the difference between the amount owed and the net present realization value of the guarantee (s) that back the operation (s).

In other words, this severity indicator measures the loss that the creditor would suffer after having taken all the steps to recover the loans that have been defaulted and can be estimated as 1 – TR, where ?? TR ?? is the Recovery Rate (in percent). The recovery rate is understood as the relationship between the unfulfilled balance, the net of recoveries for capital and others, and the total unfulfilled balance.

d) Exposure at Time of Default (E)

Exposure at the time of default is the total amount committed by the debtor at the time the default occurs; Consequently, its estimate includes, in addition to the direct debit contracted by the debtor, the potential exposure from contingent operations that could become a portfolio in the future.

e) Maturation (M)

Represents the effective maturity, which calculates the remaining economic maturity of an exposure (measured by T – t). Maturity is calculated based on the residual term of the operation.

By Master James

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