What is Credit Scoring?

Have you ever wondered what is credit scoring? Credit scoring is a system creditors use to help determine whether or not to give you credit.

How does a creditor decide whether or not to grant you credit? Creditors use credit scoring systems to determine if you'd be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans.

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 application and your credit report.

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.

Credit scoring is used because it 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. Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed.

A significant factor in determining your credit score is your payment history. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

You may freely reprint this article provided the author's biography remains intact:

About the Author

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.

Jeff Gerritt: Setting Insurance Rates: Credit Scoring or Gouging? (Detroit Free Press)
Insurance companies in Michigan no longer will be able to use customers' credit scores to set home and auto insurance premiums if a state Court of Appeals ruling stands. Reform advocates are happy, arguing that credit scoring is another way insurance companies discriminate against urban policy holders.

Scoring laws floor Comaneci as pair duels for fame and fortune (Bombala Times)
IF THE quadrennial search is for the next Nadia Comaneci, then this year's sweetheart will have no opportunity to achieve scoreboard perfection or inspire a film starring the 2008 equivalent of Bo Derek.

Florin wants to eliminate 2007 memory (Elk Grove Citizen)
It was a simple question posed to Florin High School head coach Mike Morales: What are you looking forward to about this season? His response is becoming a disconcerting trend for the football program.

Pack loses Wilson, losing game (The News & Observer)
N.C. State fans wondered what could be next for their injury-prone football team. It looks like it might be quarterback Russell Wilson. South Carolina leads 27-0 with just under seven minutes left in the game.

Which credit scores do lenders use most often? (Daily Local News)
When a teenager gets his or her SAT scores, everyone knows that the same numbers are sent to colleges. And companies that sell credit scores...

Home page

Information Index