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Credit is a way to evaluate a debtor's (also known as a borrower) reputation or creditworthiness of the entity in which takes responsibility of providing funds or resources (such as granting a loan) thereby generating a debt. The first party is called the creditor, also known as a lender, while the second party is the debtor. On a credit loan, the creditor makes arrangements to repay or return those resources (or material(s) of equal value) at a later date.
Any movement of financial capital in most cases is dependent on credit, which in turn is dependent on the reputation of the debtor's creditworthiness or reputation.
Credit is the simple explanation for an individuals credit history or credit report which is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score.
"When a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau, along with constant updates on the status of their credit accounts, address or any other changes made since the last time they applied for any credit." The Finance Network
An debtor's information is used by lenders such as credit card companies to determine an individual's or entity's credit worthiness; that is, determining an individual's or entity's means and willingness to repay an indebtedness. This helps determine whether to extend credit, and on what terms. With the adoption of risk-based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the annual percentage rate (APR).
Most lenders employ their own models (Credit Scorecards) to rank potential and existing customers according to risk, and then apply appropriate strategies. With products such as unsecured personal loans or mortgages, lenders charge a higher price for higher risk customers and vice versa. With revolving products such as credit cards and overdrafts, risk is controlled through careful setting of credit limits. Some products also require security, most commonly in the form of property.
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information, typically sourced from credit bureaus / credit reference agencies.
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