What is credit scoring?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points – a credit score – helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely used credit scores are FICO scores, which were developed by Fair, Isaac and Company. Your score on an application will fall between 350 (high risk) and 850 (low risk). You do not have one single FICO score, Fair Isaac has developed many different models, used for different types of credit; they change over time and it’s hard to predict which version a given lender is using. Different credit bureaus may have slightly different information in their files on you, and those differences may or may not matter for a particular scoring model. Some companies will offer to sell you a credit score. It’s important to understand that the number you get from one of those companies is not necessarily the same number a lender will calculate when it reviews your mortgage application. 

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (866) 349-5191 
Experian (formerly TRW): (888) EXPERIAN (397-3742) 
TransUnion: (800) 888-4213 
These agencies may charge you for your credit report.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report can be requested through the following website: https://www.annualcreditreport.com. No other website provides your once-a-year free report.

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