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What is Credit Score and How to Fix it for Financing Companies

apa itu credit score

The term of credit score is a common term in the financial industry. The score is used as a worthiness indicator of a customer when they try to access the financial industries’ facilities. Namun, sudahkah Anda memahami lebih dalam tentang apa itu credit score serta fungsinya dalam lembaga pembiayaan?

In this article, you will learn about the definition of credit score and the score’s crucial functions in the financial industry. Furthermore, you will also learn the range of the score to determine whether a customer is worthy or not as a part of the consideration process in their credit application. Mari simak artikel ini sampai selesai!

What is Credit Score

Credit score is a numerical score used by the financial industry to determine whether customers such as individuals or companies have good credit qualities or not. By using the score, financial companies can assess the possible risk that customers may have when they try to apply for credit.

The score is commonly based on the customers’ credit history, such as loan information, credit bills, amount of fines in the past, and other financial obligations.

The process to determine the credit score involves gathering information about the customer’s credit, either from financial institutions or other credit sources.

Together data will then be analyzed by using complex statistical analysis and models to create a representative credit score.

The number of the score is commonly shown in a range of numbers, such as from 300 to 850 in the FICO scale. A higher score commonly indicates that the customer has good credit history.

However, we need to keep it in mind that many financial institutions may have different standards in determining their own credit score and acceptable risk levels.

For this reason, a good credit score in one financial institution doesn’t necessarily mean that the score is good enough in another financial institution.

Read also: Apa Itu Risiko Kredit dalam Bisnis Properti?

Functions of the Score for Financing Institutions

The following is the six functions of the credit score.

1. Assessing the Customer’s Payment Ability

The first primary function of credit scoring is to determine a customer’s ability to make payments over time. Financial institutions can recognize whether a customer has a good or bad credit payment history through this scoring process.

If the customer has a good payment ability, the customer is more likely to receive credit loans with good interest rates.

2. Determining the Decision for Credit Application

Credit scoring can also help financial institutions in determining the decision about credit applications. This institutions can process and evaluate these applications by using the scoring method.

A high credit score for everyone that the customer has the ability to make payments in time and can be trusted with the credit loans.

3. Predicting the Customer’s Financial Risks

In the financing industry, financial risks have to be addressed at all times. The scoring method can help financial institutions to determine a customer’s financial risk levels.

They can assess the extent to which a customer has potential difficulties in repaying a loan by considering the customer’s credit score and credit history. Ini Perlu Di hapus Lembaga pembiayaan pun bisa mengurangi risiko yang terjadi melalui credit scoring.

4. Helping the Credit Survey Progress

A credit survey is an important step in the credit scoring process. Credit scoring assists the credit survey process by providing information about a customer’s credit history quickly and accurately.

Financing institutions can assess the risks associated with a loan and decide if the loan is appropriate for a prospective customer through a credit score.

5. Determining the Amount of Initial Deposit and Interest

The credit score also plays a role in determining the amount of the initial deposit and the interest rate to be set on the prospective debtor. The higher the customer’s credit score, the more likely it is to get a lower initial deposit and more competitive interest rates.

That is, a good credit score can indirectly save customer costs in the lending process.

6. Suppressing Operational Costs

Manual credit scoring process can be time-consuming and resource-intensive for financing institutions. However, financing institutions can automate the credit scoring process thereby reducing the operational costs associated with this process.

They can process loan applications quickly and effectively using an efficient credit scoring model.

Read also: 9 Unsur-Unsur Kredit dalam Bisnis Pembiayaan

What is a Good Credit Score for Application of Loans?

Please note that the credit score limits used in loan applications are set by the Financial Services Authority (OJK) in Indonesia and the Fair Isaac Corporation (FICO). You need to use one of these two benchmarks to find out the amount of credit score that is safe for approving a loan application.

Lihat rincian mengenai credit score berdasarkan BI Checking dan FICO di bawah ini.

1. BI Checking

The BI Checking method is managed directly by the Financial Information Service System (SLIK) under the supervision of the Financial Services Authority (OJK). Here are the details:

  • Score 1: smooth credit category
  • Score 2: credit category that requires special attention
  • Score 3: non-smooth credit category
  • Score 4: doubtful credit category
  • Score 5: bad credit category

According to the BI Checking method, a good credit score is a score of 1 or a minimum of 2.

2. FICO

Meanwhile, the FICO credit scoring method developed by Fair Isaac Corporation has the following details:

  • Rating range 300-579: poor
  • Value range 580-669: fair
  • Value range 670-739: good
  • Rating range 740-799: very good
  • Rating range 800-850: excellent

According to the FICO scoring method, a good credit score is one that is above 670.

Jadi, apa itu credit score? In short, a credit score is a numerical value that reflects the credit quality of a customer. The score has a crucial function in financial institutions because it determines the creditworthiness of prospective borrowers before the loan application is approved.

Therefore, it is important for financial institutions to establish appropriate indicators in determining credit scoring.

Read also: Restrukturisasi Kredit: Syarat, Jenis dan Skemanya dalam Sektor Asuransi

Validate Your Debtor Data with eendigo

Credit score termasuk dalam proses validasi calon debitur untuk menilai tingkat risiko dan kelayakannya dalam pengajuan pembiayaan.

In order for the calculation process to run effectively, use the eendigo User Validation equipped with machine learning technology to assess the risk level of each user and adjust the authentication method according to the credit policies that apply to your financial institution.

Other than eendigo User Validation, you will also need Credit Scoring service from AdIns for a smooth credit score assessment process.

This service will help you identify potential customers comprehensively by integrating data from the parties you need, starting from Disdukcapil, Pefindo, and SLIK. Contact us for this flagship product from eendigo and AdIns!