Credit Scoring

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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.

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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 >>
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    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
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    The funds from operations (FFO) to total debt ratio is used in fundamental analysis to determine a company's financial risk. ... Read Full Answer >>
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