What is a Credit Score?

A credit score is a number that represents an estimate of an individual's financial creditworthiness as calculated by a statistical model. A credit score attempts to quantify the likelihood that a prospective borrower will fail to repay a loan or other credit obligation satisfactorily.

A credit score is based on a subset of the information in an individual's credit report. Lenders such as banks and credit card companies use credit scores to manage the risk posed by lending money to consumers. Examples of such uses include determining who qualifies for a loan, assigning an interest rate, assigning credit limits, or managing accounts that are already open (for example, treatment of accounts that are in default). The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.

Credit scoring has been used for years by those making decisions about your suitability for obtaining and managing credit. Credit scoring is a very complex issue. Those consumers who are interested in addressing their own bad credit scores should talk to the professionals. Get help to improve credit scores!

Credit Scoring Systems

Credit does not refer only to a credit card. The term credit is used to describe an individual's financial dependability. How trusting a creditor is toward you depends on your credit worthiness. Your worthiness for access to any creditor’s money or goods is based on your history of employment, timely payments on debt, and salary.

If you are considered a trusted candidate for credit, you will be able to borrow money more easily and at a lower rate than someone with poor credit. Those without good credit can find it difficult to access funds, whether they are for a car loan, mortgage, housing, or even employment.

Your trustworthiness for credit is assessed by creditors using a credit score. Your credit score is kept on your credit report.

Young people just starting out typically have no credit score. This is why it is so important for a young person to understand what a credit is before accessing it.

Credit scoring systems use various statistical programs that take into account many factors. Some of these include the number and type of bank accounts a person has, their history of bill paying, outstanding debts, any collections actions that have been brought against them, bankruptcies and others. The statistical programs used work by comparing an individual's history and background with that of other consumers with similar financial situations in order to assess the likelihood that the debt will be managed appropriately and repaid. The scoring system awards points for predictors of future ability to repay credit debt. The total amount of points is called a 'credit score' and can be the most important variable in determining whether or not you will be able to receive credit.

Credit scoring systems are based on empirical, real world data and, as a result, enable a creditor to place less reliance on subjective opinions of the people responsible for offering credit to those who apply. These systems seek to assess every individual objectively with a goal to place less emphasis on variable, individual criteria.

Many credit scoring systems heavily empathize an individual's credit report, which is why an accurate credit report is essential to anyone seeking credit. Your credit history won't just affect your ability to borrow, but even how much money it costs you to borrow!