Credit Scoring

Credit scoring can remain a mystery as to how the exact scores are calculated. Although there are specific ranges for scores, determining what increases a score is hard to do and many times impossible to ascertain. The ambiguity of scores is something that will not be resolved but there are measures you can take to better understand your score and try to improve it.

Credit Scoring Factors

Credit scores are based on a number of factors that relate to credit or loan accounts. Your bill-paying history, number of accounts open, outstanding debt and age of accounts all contribute to a particular score. Even if your payment history is excellent your credit score may suffer because of the number of accounts you have open. It is important to review your credit report and make sure you only have necessary accounts open.

The credit scoring system awards points for each factor that helps determine how likely someone is to repay a debt. The total number of points that a person receives yields a credit score which predicts how creditworthy each individual is. Creditors use a statistical program to compare a credit score to other consumers with similar profiles and make a decision about a new debt.

Why Are Credit Scores Used?

Credit scores rely on data and real time statistics provided by various credit issuers. This information is much more reliable than any other subjective or judgmental method and provides the issuer with prior history. The scoring systems that are in place are not subjective and do not vary between individuals meaning that all consumers are based solely on their credit histories.