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Credit Score

By brokencode ⋅ April 5, 2008 ⋅  Email This Post ⋅  Print This Post ⋅ Post a comment

A credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information, typically sourced from credit bureaus / credit reference agencies. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system. Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, employers, and government departments employ the same techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar techniques. Credit history or credit report is, in many countries, a record of an individual’s or company’s past borrowing and repaying, including information about late payments and bankruptcy. The term “credit reputation” can either be used synonymous to credit history or to credit score. When a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau, along with constant updates on the status of their credit accounts, address or any other changes made since the last time they applied for any credit. This information is used by lenders such as credit card companies to determine an individual’s or entity’s credit worthiness; that is, determining an individual’s or entity’s means and willingness to repay an indebtedness. This helps determine whether to extend credit, and on what terms. With the adoption of risk-based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the annual percentage rate (APR).

Tags: credit, credit report, credit score, Featured