What is credit scoring?
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 are 300’s 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, or FICO score, is a single number supplied by credit bureaus that is useful for predicting a person’s ability to repay a loan. Credit score calculations are based on a model developed by Fair Isaac Company, hence the term FICO. The FICO score is determined by your credit history – previous performance, current level of debt, how long you’ve had credit, how much credit you are currently seeking, and what types of credit you have available. Your FICO score is one factor the underwriter considers when evaluating your loan file.
Credit scoring refers to a system by which some companies use an individual’s credit experiences–such as bill paying history, the number and types of accounts they have, late payments, collection actions, outstanding debts and the age of their accounts–in determining whether to sell insurance to the individual or what rate to charge the individual.
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 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. Because your personal credit report 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. To get copies of your personal credit report, contact
