Credit Score 101: What Is Credit Scoring?

Credit scoring is a system that creditors use to help determine whether to give a person credit or not. According to the Federal Trade Commission (FTC), it may also be used to decide the terms a person is offered or the rate that person will pay for a loan.

What type of information is collected from a credit report?

  • Bill-paying history
  • Number and type of accounts
  • If a bill is paid by the date they’re due
  • Collection actions
  • Outstanding debt
  • Age of accounts

Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles, FTC explains. A credit scoring system, for example, 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 a person is or how likely is that person going to repay the loan and make the payments when they’re due.

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