How do lenders determine the credit risk?
Risk-based pricing looks at factors associated with the ability of the borrower to pay back the loan, namely a consumer's credit score, adverse credit history (if any), employment status, income, dent level, assets, collateral, the presence of a co-signer, and so on..
How is credit risk priced?
Credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation.
For most banks, loans are the largest and most obvious source of credit risk.
However, there are other sources of credit risk both on and off the balance sheet..
How to measure the risk of credit?
The credit score serves as a risk indicator for the lender based on your credit history.
Generally, the higher the score, the lower the risk.
Credit bureau scores are often called "FICO\xae Scores" because many credit bureau scores used in the U.S. are produced from software developed by Fair Isaac Corporation (FICO)..
What is credit risk based on?
Credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation.
For most banks, loans are the largest and most obvious source of credit risk.
However, there are other sources of credit risk both on and off the balance sheet..
