| home |  | |
credit scores | | |
education | | |
other services | | |
about us | |
What is credit scoring?
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit file. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. Because your credit file is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application.
There are many different scoring models. Many lenders devise their own scoring models using variables that are important to them, so the score that you get from one creditor probably won’t mean very much to another creditor.
Why is credit scoring used?
Credit scoring is used to speed the application process and to automate the analysis of credit applications. Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.