Loading the player...

DEFINITION of 'Credit Scoring'

A statistical analysis performed by lenders and financial institutions to access a person's credit worthiness. Lenders use credit scoring, among other things, to arrive at a decision on whether to extend credit. A person's credit score is a number between 300 and 850, 850 being the highest credit rating possible.

BREAKING DOWN 'Credit Scoring'

Fair Isaac Corporation's credit scoring system, known as a FICO score, is the most widely used credit scoring system in the financial industry. Lenders use credit scoring in risk-based pricing in which the terms of a loan, including the interest rate, offered to borrowers are based on the probability of repayment. In general, the better a person's credit score, the better the rate offered to the individual by the financial institution.

RELATED TERMS
  1. Credit Score

    A statistically derived numeric expression of a person's creditworthiness ...
  2. FICO Score

    A type of credit score that makes up a substantial portion of ...
  3. Credit Limit

    The amount of credit that a financial institution extends to ...
  4. Precision Score

    A number used by the TransUnion Credit Bureau to quantify the ...
  5. Cut-Off Score

    The lowest possible credit score one can have and still qualify ...
  6. Prime Borrower

    A prime borrower is considered likely to make loan payments on ...
Related Articles
  1. Personal Finance

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  2. Personal Finance

    What Credit Score Should You Have?

    We break down credit scores by age to see what your score should be and how it will affect your major purchases.
  3. Personal Finance

    Common Things That Improve And Lower Credit Scores

    Credit scores are used by lenders to estimate credit risk. Find out how you can better earn the trust of lenders and reap the benefits.
  4. Managing Wealth

    Can You Hit A Perfect Credit Score?

    Everyone wants a great credit score, but few know exactly how to achieve perfection. Find out how your credit score is kept and what it takes to reach a perfect 850 rating.
  5. Personal Finance

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  6. Personal Finance

    How Your Credit Score Compares to the Average American's

    While only a small percentage of Americans have terrible credit scores, a whopping 30% have poor or bad credit, according to the Consumer Financial Protection Bureau.
  7. Personal Finance

    What Is the Lowest Credit Score?

    Learn about the different types of credit scores available to borrowers, and find out about the lowest scores under each one of those credit scores.
  8. Personal Finance

    Top Places To Get A Free Credit Score Or Report

    When's the last time you checked your credit report? With all the hacking out there, don't wait for the car dealer to find problems when you need a loan.
  9. Personal Finance

    FICO Or FAKO? The Limitations of Free Credit Scores

    There's something you should know about the scores you get from free credit scoring services: They usually are not the same FICO scores lenders pull.
  10. Personal Finance

    The 5 Biggest Factors That Affect Your Credit

    With possible scores ranging from 300 to 850, credit scores reveal someone’s history for paying bills and being responsible.
RELATED FAQS
  1. What are the biggest factors that can affect my credit score?

    A credit score is a numeric expression that helps lenders estimate the risk of extending credit or loaning money to people. ... Read Answer >>
  2. What's more important to lenders, my credit score or my credit report?

    Find out why lenders care more about your credit report than your credit score and why you should care more about your credit ... Read Answer >>
  3. Why don't I have a credit score?

    Learn about some of the reasons why you might not have a credit score, and find out how you can build a good credit score ... Read Answer >>
  4. What's the difference between credit score and credit history?

    Check out the differences between credit score and credit history, and learn how your credit history is used to create your ... Read Answer >>
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center