How banks calculate bad credit?

How Credit Scores Are Determined

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Payment history refers to whether or not person’s payments were made on time, and the amount owed refers to the total amount of debt including mortgages, credit cards, judgments and other debts owed by the individual. Length of credit history takes into account the oldest account noted on the credit report. A borrower who only has credit cards scores lower in this category than a borrower with a mortgage, a car loan, a line of credit and a credit card. So new credit refers to the number of credit inquiries recently made by the individual or the number of accounts recently opened.

What is bad credit score

Scores between 580 and 669 are basically labeled as fair. Only 28% of these borrowers are likely to become seriously delinquent on loans, making them much less risky to lend to than borrowers with bad credit scores. Although, even borrowers within this range face high interest rates or might have trouble securing loans.

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