What is a Credit Score?
A credit score is like a grade on a report card based on your all information contained in your credit file. Credit scores consist of a sophisticated set of formulas developed by the supplier of the credit score. Your actual credit score can only be seen by lenders, insurers, and employers to determine if you are a good or bad credit risk. When an entity requests your credit file and score, the credit reporting agency compiles your credit file and computes your score at that moment in time. The credit score is basically a snapshot of your risk level based only on the information in your credit file. There are a number of different scoring models. By far, the most popular scoring model is the FICO Model. This model is produced by the Fair-Isaacs Corporation (FICO). This model produces scores which range from 350 and 850, with higher scores equating to lower risk.
A credit score provides a numerical snapshot of someone’s credit at a point in time. It reflects your credit risk level—the higher the number, the lower the predicted risk. Low numbers indicate greater risk. The best-known scoring system—the FICO Score—is a credit bureau risk score generated by information from your credit report only. Credit scores aren’t stored as part of a credit profile, and may change from lender to lender since calculation factors vary. The score does change every time credit information changes in your credit report and a new or minimal credit history means it may not be possible to calculate a score.
A credit score is a numeric value assigned by credit grantors to indicate how likely someone is to pay back a loan or credit card according to the agreed repayment terms. It is an indicator of the level of risk that a borrower might represent. It is used as a predictor of future performance. Much like a life insurance company that reviews your medical history to determine the insurance risk when you apply for a life insurance policy, credit grantors review your financial history to determine your credit risk. Credit grantors often use an automated scoring process to help make that risk assessment. A credit score is only one piece of information credit grantors use when evaluating your application for credit. Some credit scores may be based solely on information in your credit file. Other scores may be based on a combination of credit file information and other information you supply on your credit application. Generally, scores use your past credit history to help predict how you might
