What is credit scoring?
Credit scores provide a numerical representation of a consumer’s credit at a point in time. The most popular credit score is a credit bureau risk score that is based only on what is in your credit report. Computer programs process a consumer’s credit report and analyze those factors that have been found to predict creditworthiness. The resulting score assesses the likelihood that a borrower will repay a loan or credit card on time. The higher the score the greater the likelihood that you will be approved for credit, possibly with a better rate than if you had a low score. Anytime information changes in your credit report, your score will change. If you have a short or incomplete credit history, it may not be possible to calculate a score.
A credit score is derived by analyzing a number of variables to determine the likelihood that a person will repay the loan on time. The scoring system was developed from a statistical analysis of variables that predict loan repayment patterns. Variables include late payments, delinquencies and credit history. A higher score is better.
This is a system that Abbey and most other banks use when making our decision about whether to lend you money. We use the information you provide in your application such as your age, job and existing financial commitments. Credit checks are also made at credit reference agencies to find out how you have managed credit with other lenders. If you are an existing customer, well check your accounts. These all affect the decision we make.
Consider if everyone had perfect credit and think about what it takes to really have it. If you pay your bills on time, you’re never late on your credit card payments, you are generally considered a no-risk, then you’re probably an A-1 customer. The standard range for credit scores is from the 300s to a high above 800. The score represents a statistical evaluation of how likely you are to default on a loan. The lower the score, the higher you are likely to default. Lateness, collections and bankruptcies weigh most heavily against your credit score.
A credit score is a snapshot of your credit at one point in time. The credit information from your credit report is put through a mathematical formula (credit scoring model) that assigns weights to the various factors and summarizes your credit information into a three-digit number ranging from zero to 999. Many insurers believe that the lower the number, the more likely the consumer will file a claim.
