Credit Reports and Credit Scores

You may wonder how a creditor looks at the information on your credit report and makes a decision about your credit standing. Many creditors use a computer model to analyze your credit report and give it a credit “score.”

• What is a credit score? A credit score is used to predict how likely an individual is to repay a new loan based on experience with millions of consumers. In general, a computer model assigns points to information in a credit report. For example, making payments on time every month is positive for the score. Charging the maximum amount available on a credit card is negative. The computer adds the positive and negative points, and the resulting number is your credit score.


• What is a “good” credit score? That depends on the credit-scoring model and the lender. For example, one computer model’s score ranges from 300 to 900; the higher the number, the better. In addition, each creditor decides which credit score range it considers to be a good risk or a poor risk. For this reason, the creditor is the best source to explain what your credit score means in relation to the final credit decision.


• Why are credit scores used? Creditors, including mortgage lenders, use credit scoring because it is a fast, objective way to evaluate a credit report. Credit scoring also protects you because your age, health, race, religion, gender, national origin, marital status, income, and employment are not considered in determining your credit score.
• How can I improve my credit score? If a creditor has told you that you have a poor credit score and has turned you down for credit because of your score, there are steps you can take. Visit the “How to Improve your Credit” section of this Web site for more information.