Credit Scores
Credit scores became widely used in the 1980s as a way to determine who should receive credit. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error. Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer's credit report.Credit scores are based on information contained in your credit report; therefore, it is very important that your credit report be accurate. A credit score is a fluid number that changes as the elements in a credit report change. For example, payment updates or a new account could cause scores to fluctuate. There are many different credit scores used in the financial service industry. Scores may be different from lender to lender (or from car loan to mortgage loan), depending on the type of credit-scoring model used.
The actual number of your credit score will fall somewhere in the industry standard of 500 to 800. A higher score means a better chance of having a credit or loan request approved. Most credit scoring systems consider a variety of factors, such as number of credit accounts, total credit available, amount of outstanding debt and late payment record. To improve your credit score, follow the suggestions listed in the "Improving Your Credit" section.
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Credit Scores & Credit Reports
by Evan Hendicks
