 Ever wonder how a creditor decides whether to grant
you credit? For years, creditors have been using credit scoring systems to
determine if you'd be a good risk for credit cards and auto loans. More
recently, credit scoring has been used to help creditors evaluate your
ability to repay home mortgage loans. Here's how credit scoring works in
helping decide who gets credit -- and why.
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 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 report, contact the three
major credit reporting agencies:
- Equifax: (800) 685-1111
- Experian (formerly TRW): (888) EXPERIAN (397-3742)
- Trans Union: (800) 916-8800
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