Credit Scoring

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. Good Credit

    A qualification of an individual's credit history that indicates ...
  3. FAKO Score

    A derogatory term for a credit score that is not one of the FICO ...
  4. Credit Mix

    The types of accounts that make up a consumer’s credit report. ...
  5. FICO Score

    A type of credit score that makes up a substantial portion of ...
  6. Business Credit Score

    A number indicating whether a company is a good candidate to ...
Related Articles
  1. Credit & Loans

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  2. Credit & Loans

    Getting Your Credit Score from a Bank

    That all-important, once-secret number is now easy to obtain from financial institutions and credit card companies.
  3. Credit & Loans

    Is My Credit Score Good Enough for a Mortgage?

    Your score is critical in determining not only whether you'll secure a loan for a home, but also what interest rate you will be offered.
  4. Credit & Loans

    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.
  5. Credit & Loans

    9 Ways To Improve Your Credit Score Today

    When it comes to finances, there are a number of goals that you might have established, such as saving money, paying down debt or new investments.
  6. Credit & Loans

    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.
  7. Credit & Loans

    Credit Score vs. Credit Report: Which Is Better?

    They sound alike, but can serve very different ends.
  8. Credit & Loans

    7 Credit Myths You Thought Could Hurt Your Score

    The Internet is brimming with tales of how your complete lack of knowledge surrounding credit scores is costing you big every day.
  9. Credit & Loans

    How Bad Is My Credit Score?

    You've seen the number, but what does it mean? Here's how to assess your credit score and get to a better place if needed.
  10. Credit & Loans

    The 5 Biggest Factors That Affect Your Credit

    Credit companies rely on these factors to determine whether to lend to you and at what rate.
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. Does a free credit report show your credit score?

    Find out how you can obtain your credit score, and find out whether your score is included in your free annual credit reports. Read Answer >>
  4. How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This ... Read Answer >>
  5. 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 >>
  6. How does the number of credit card accounts I have affect my credit score?

    Your credit score, which is also referred to as your FICO score, is a measure that creditors use to assess your potential ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. 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 ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center