Credit Scoring

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Repayment

    The act of paying back money previously borrowed from a lender. ...
  2. Credit Report

    A detailed report of an individual's credit history prepared ...
  3. FICO Score

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

    1. A contractual agreement in which a borrower receives something ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Credit Bureau

    An agency that researches and collects individual credit information ...
RELATED FAQS
  1. Will credit card inactivity affect my credit score?

    Whether your credit score will be affected by inactivity depends on how you define "inactivity". Your credit report does ... Read Full Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  3. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>
  4. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  5. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
  6. What are the differences between delinquency and default?

    Delinquency and default are loan terms that describe failure to make a required payment. A loan in delinquency occurs the ... Read Full Answer >>
Related Articles
  1. Budgeting

    5 Ways To Control Emotional Spending

    Follow these five simple steps to keep your spending under control.
  2. Credit & Loans

    What's On A Consumer Credit Report?

    A look at the various components and considerations that go into one's credit report and credit score.
  3. Budgeting

    Are You Living Too Close To The Edge?

    If a missed paycheck will make your finances cave in, you must learn how to make proper supports.
  4. Options & Futures

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.
  5. Entrepreneurship

    Run Your Finances Like A Business

    Think of yourself as your own little company. To make it run smoothly, you need to take a look at your books.
  6. Retirement

    The Indiana Jones Guide To Getting Ahead

    Follow Indy's advice to conquer the obstacles blocking your path to financial well-being.
  7. Options & Futures

    Top 7 Most Common Financial Mistakes

    Choose fortune over disaster by avoiding these money traps.
  8. Credit & Loans

    Explaining Credit Ratings

    A credit rating is a third-party assessment about the creditworthiness of an individual or entity.
  9. Savings

    How Interest Rates Work on Savings Accounts

    Here's what you need to know to grow your rainy-day fund.
  10. Credit & Loans

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!