Precision Score
What Is the Precision Score?
The term "precision score" alludes to the former name of the supposed "NextGen Risk Score" developed by the credit scoring company, Fair Isaac Corporation (FICO). It is one of numerous FICO scores associated with the company, and is widely utilized by lenders to evaluate the creditworthiness of expected borrowers.
The credit reporting agency TransUnion (TRU) formerly utilized the term "Precision Score" to allude to one of the famous credit scores created utilizing their data. Today, this equivalent measure is alluded to by TransUnion as the FICO NextGen Risk Score.
How the Precision Score Works
Credit scores play an important job in the financial economy. By assisting lenders with rapidly evaluating the creditworthiness of a particular borrower, credit scores can assist with lessening the time and risk associated with stretching out credit to new candidates. Today, the three major credit report companies are Experian, Equifax (EFX), and TransUnion; the most well known credit scoring formula is the alleged FICO scores, developed by Fair Isaac Corporation.
Likewise with most credit scoring systems, a high score demonstrates a high level of creditworthiness, and subsequently a moderately low risk of default. On the other hand, low scores shows low creditworthiness, filling in as alerts for would-be lenders. Credit candidates with low credit scores are either dismissed outright or, in all likelihood extended credit based on less positive conditions, (for example, with higher interest rates). In different cases, credit would be approved however provided that extra assets are pledged as collateral. Hence, credit reports, and the scoring formulas used to determine them, are a subject of substantial interest to the two borrowers and lenders the same.
Albeit the specific term "precision score" is not generally utilized, it is part of an overall category of FICO scores that keeps on being far and wide. While specific scores might fluctuate, FICO scores ordinarily consider five factors while determining overall creditworthiness.
- Borrower's history of payments
- Borrower's current level of indebtedness
- Time span in which they have been a credit customer
- Types of credit which they use
- Number of times they have applied for new credit items
By and large, the most intensely weighted factors are the candidate's history of payments followed by their level of current indebtedness.
Real World Example of the Precision Score
As a rule, a FICO score over 670 demonstrates an exceptionally high level of creditworthiness, though scores below 580 may make borrowers be dismissed or to be offered not exactly great terms. The precision score, in any case, depended on a scale of 150 to 950. This scale keeps on being utilized today, under its current marking as the FICO NextGen Risk Score.
Albeit the methodology utilized in working out the FICO NextGen Risk Score isn't uncovered, the company claims that its utilization is associated with lower default rates as compared to the traditional FICO scores.
In recent years, the three major credit reporting firms have made their own credit scoring system, known as the VantageScore. This new score currently contends with FICO for both buyer confronting and business-to-business applications.
Highlights
- The precision score was a credit scoring system developed by FICO.
- It has since been rebranded as the NextGen Risk Score.
- In recent years, the three major credit reporting agencies have made their own credit scoring system, known as VantageScore.
