Credit is a very important aspect when it comes to home buying, investing, making payments on utilities, and other important expenditures. For banks to give credit to borrowers they will need to know whether the borrower will be able to pay back the money. Before giving credit, the lender will probably look at four key factors. These include the amount one has for a down payment, the ability to earn enough income to pay back the borrowed amount or loan, the credit history of the borrower, and the presence of collateral or security to cover for the loan. This information concerning a borrower’s credit worth and the ability to pay back the amount loaned is referred to as credit information. Access to credit information by financing institutions such as banks can sometimes be tricky because of the existing legislation. However, some countries have made it easy for institutions to access this credit information through the banking act. Some of the countries with the most private and public credit information resources on hand are looked at below.
Building up a line of credit in Saudi Arabia involves application of the credit, evaluation, disbursement, and repayment of the credit. Application of credit involves filling an application which is then sent to a credit bureau for background check. In Saudi Arabia, SIMAH is the credit bureau in charge of conducting background checks and gather credit related information and history in regard to the borrower. SIMAH allocates credit score to the borrower according to the credit information gathered. Saudi Arabia’s depth of credit information index stands at 8 the highest score according to the World Bank. Credit score information is readily available in the country.
Armenia has improved access to credit information by making it mandatory to gather and distribute information from financial institutions and utility companies. The new laws there have established a legal framework for the credit bureaus to enable them to collect credit information and make credit reports available for lenders. The private credit bureaus have been in operation distributing credit information to firms and individual. Armenia’s depth of credit information index is at a maximum of 8 and is readily available
In the United States, credit scores represent the credit worth of the borrower and the likelihood they will pay back the credit given. In the United States the FICO score is used by most banks and other financial institutions to determine credit worthiness. FICO score depend on the credit bureau providing the information to generate the score. In the United States, possessing a median classic FICO score, which is around 8, indicates a lower risk of defaulting. Other credit scores in the United States which are non-FICO scores are the FAKO, which is a score mainly used for educational loan purposes, as well as Experian and Equifax. According to the World Bank, the United States has a credit score information access level of 8, and therefore such is readily available in the country.
Utility of Credit Scores in Banking and Finance
Credit scores are of great importance for lenders in decision making on whether to grant credit to a prospective borrower or not. A credit score is adjusted whenever new information appears on the credit report. Countries keen on making access to credit simpler have allowed credit bureaus to gather information regarding the lender without any restrictions. Credit bureaus play a critical role of availing credit reports to potential lenders and credit grantors upon request and other investors.