Did you ever think that applying for a car loan would require scoring well on a test that you've been taking for years but never really studied for? Scores are how creditors determine your creditworthiness and
likelihood that they are going to give you a loan. Credit scoring was first developed in 1950s, but over last couple of decades, it has become more sophisticated and a crucial part of seeing whether giving you money is worth risk.
All three major credit agencies (Experian, Equifax and Trans Union) worked to develop a generic scoring system based solely on information reported to them about an individual. Credit scoring is a scientific method that uses statistical models to assess an individual's credit worthiness based on their credit history and current credit accounts.
When you apply for a mortgage, a car loan, a student loan, and a credit card or in some cases even employment, offering company can order a copy of your credit report.
While each credit agency has a common value system for their scores, how they tabulate scores is individual to each company based on data in their system. It's also worth noting that all three are not uniform in how much information is reported to them or requested from them.
While all three are accessible, information for a particular creditor may only be reported to one of agencies. So if Equifax has a positive report from Company A, you might not find that same report at Experian or Trans Union.
So when a score is requested, a computer compiles it by using information from an individual's credit report, such as how much money is owed and whether payments have been made on time.
Then that score is compared to credit performance of others with similar profiles. The system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points per credit score helps predict how likely it is that you will repay a loan and make payments on time.
