Credit Scoring


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.


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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.

  1. Credit Report

    A detailed report of an individual's credit history prepared ...
  2. Repayment

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