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Credit scoring gives creditors and lenders the ability for quick, unbiased scrutiny of credit histories. Generic credit scoring models were created in the 1980s by the three major credit reporting agencies Equifax, Experian and Transunion. These agencies worked with the Fair, Isaac company, creating a credit scoring system for individuals based on their personal information.

How is a credit score calculated?
Credit scores are computed based on two main pieces of data. The first being a computer generated score produced based the information in your credit report, i.e. are you accounts up to date? do you pay your bills on time? The other piece of data used to calculate your credit score is the comparison of your performance to people with similar credit profiles. Points are rewarded for every factor that helps determine who is most likely to pay their debts...ultimately producing your credit score.

What is the purpose of credit scoring?
The credit scoring system allows 'instant credit' to be granted by creditors. If you are in the market for a new car, you can fill out an application for a car loan and find out instantly if your credit report and score are strong enough for a loan to be granted. This type of instant decision was impossible in the past.

The credit scoring system also eliminates prejudices by creditors. The credit scoring system is objective and is formulated on grand scales of statistical information, creating a strong degree of fairness.

Get a free copy of your credit report today!

Related reading:
Learning About How Your Credit Score is Computed
How Your Age Influences Your Credit and Your Chances for Loan Approval
Who is Looking at Your Credit?
Improving Your Credit Score
Understanding How Auto Lenders Use Your Credit
What Will Your Credit Be Accessed?
Shared Debt

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