1. Which Scores Are Used To Calculate Risk

The Risk Score Calculator evaluates multiple credit risk factors using weighted scoring methodology similar to FICO scoring systems. It combines payment history, credit utilization, credit age, credit mix, and new credit inquiries to generate a comprehensive risk assessment.

2. How Does The Calculator Work

The calculator uses the weighted sum formula:

Where:

• Payment History × 35%
• Credit Utilization × 30%
• Credit Age × 15%
• Credit Mix × 10%
• New Credit × 10%

Explanation: Each factor contributes differently to the overall risk assessment, with payment history and credit utilization being the most significant determinants.

3. Importance Of Risk Score Calculation

Details: Accurate risk scoring is crucial for lenders to assess creditworthiness, determine interest rates, and make informed lending decisions while managing portfolio risk.

4. Using The Calculator

Tips: Enter scores for each risk factor (0-100 points). All values must be valid numbers between 0 and 100. Higher scores indicate better credit behavior.

5. Frequently Asked Questions (FAQ)

Q1: What is the maximum possible risk score?
A: The maximum score is 100 points, representing perfect scores across all risk factors with full weight application.

Q2: How are the weights determined?
A: Weights are based on industry standards and FICO scoring models, reflecting the relative importance of each credit factor.

Q3: What constitutes a good risk score?
A: Generally, scores above 70 are considered good, 50-70 fair, and below 50 indicate higher risk profiles.

Q4: How often should risk scores be calculated?
A: Risk scores should be recalculated regularly, especially when new credit information becomes available or significant financial changes occur.

Q5: Can this calculator be used for business credit?
A: While based on consumer credit principles, the methodology can be adapted for business risk assessment with appropriate factor adjustments.