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Encyclopedia > Credit score

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the likelihood that the person will pay his or her debts in a timely manner. A credit score is primarily based on credit report information, typically sourced from credit bureaus / credit reference agencies. Image File history File links This is a lossless scalable vector image. ... Image File history File links Gnome-globe. ... A credit report summarizes historical financial information collected to determine an individuals or an entitys credit worthiness, that is, the means and willingness to repay an indebtedness. ... A credit report summarizes historical financial information collected to determine an individuals or an entitys credit worthiness; that is, the means and willingness to repay an indebtedness. ... This article or section does not cite its references or sources. ...


Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system. For other uses, see Bank (disambiguation). ... In accounting and finance, bad debt is the portion of receivables that can no longer be collected, typically from accounts receivable or loans. ... An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... An identity score is a system for gauging and verifying the legitimacy of an individual’s public identity. ... In security engineering, a trusted system is a system that you have no choice but to trust. ...


Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, employers, and government departments employ the same techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar techniques. Kurt Thearling, An Introduction to Data Mining (also available is a corresponding online tutorial) Dean Abbott, I. Philip Matkovsky, and John Elder IV, Ph. ...

Contents

Australia

In Australia credit scoring, although not as mature in its application compared to the US, is widely accepted as the primary way applicant creditability is assessed. Credit scoring is not only used to determine whether credit should be approved to an applicant, but credit scoring is also used in the setting of credit limits on credit cards/store cards, in behavioural modelling such as collections scoring, and also in the pre-approval of additional credit to a companies existing client base.


Although logistic, or non-linear probability modelling, is still the most popular means by which to develop scorecards various other methods offer extremely powerful alternatives, including MARS, C&RT, CHAID, and Random Forests.


Canada

The system of credit reports and scores in Canada is very similar to that in the United States, with two of the same credit reporting agencies active in the country (Equifax and TransUnion). There are, however, some key differences. One such difference is that, unlike the United States, where a consumer is allowed only one free copy of his or her own credit report each year, in Canada the consumer may order a free copy of his or her own credit report any number of times in a year, as long as the request is made in writing, and that the consumer asks for a printed copy to be delivered by mail.[1][2] This request by the consumer is noted in the credit report but has no effect on his or her credit score.


The Government of Canada offers a free publication called Understanding Your Credit Report and Credit Score[3] This publication provides sample credit report and credit score documents with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online at the Financial Consumer Agency of Canada. Paper copies can also be ordered at no charge for residents of Canada. The Financial Consumer Agency of Canada (FCAC) is an agency of the Government of Canada. ...


United Kingdom

In the U.K. there is much academic research into credit scoring. Experts from banks, academia and government agencies gather bi-annually at the "Credit Scoring & Credit Control" conference in Edinburgh.


The most popular statistical technique used is logistic regression to predict a binary outcome such as bad debt or no bad debt. Some banks also build regression models that predict the amount of bad debt a customer may incur. Typically this is much harder to predict and most banks focus only on the binary outcome. Logistic regression is a statistical regression model for Bernoulli-distributed dependent variables. ...


Credit scoring is closely regulated by the Financial Services Authority. The Financial Services Authority (FSA) is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. ...


It is very difficult for a consumer to know in advance if he or she will have a high enough credit score to be accepted for credit with a particular lender. This is due to the complexity and structure of credit scoring which differs from one lender to another.


Also, lenders do not have to reveal their credit scoring methods, nor do they have to reveal the minimum credit score required for the applicant to be accepted. Simply due to this lack of information to the consumer, it is impossible for him or her to know in advance if they will pass a lender's credit scoring requirements.


If the applicant is declined for credit, the lender is also not obliged to reveal the exact reason why.


United States of America

In the United States, a credit score is a number based on a statistical analysis of a person's credit files, that represents the creditworthiness of that person, which is the likelihood that the person will pay his or her bills. A credit score is primarily based on credit report information, typically from the three major credit bureaus, namely Experian, Transunion and Equifax. In the United States, a credit score is a number typically between 300 and 850, based on a statistical analysis of a persons credit files, to represent the creditworthiness of that person, which is the likelihood that the person will pay his or her bills. ... A credit report summarizes historical financial information collected to determine an individuals or an entitys credit worthiness, that is, the means and willingness to repay an indebtedness. ... A credit report summarizes historical financial information collected to determine an individuals or an entitys credit worthiness; that is, the means and willingness to repay an indebtedness. ... This article or section does not cite its references or sources. ... Experian is a global information solutions company, with operations in over 30 countries around the world, including the USA, UK, most European countries, Argentina, Brazil, South Africa, China, Japan and Australia. ... TransUnion (full name Trans Union LLC) is a consumer credit reporting agency, considered one of the big three agencies in the United States. ... Equifax, Inc. ...


There are different variants of calculating credit scores. FICO is a credit score developed by Fair Isaac & Co. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender. The credit bureaus all have FICO alternatives: Equifax's ScorePower, Experian's PLUS score, and Transunion's Credit score. While these "FAKO" scores give the consumer a reasonably clear picture of their credit health, they sometimes confuse consumers who don't know the difference from the widely-used FICO. Fair Isaac Corporation (NYSE: FIC), founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, provides consulting services and enterprise decision management systems. ... This article or section does not cite its references or sources. ... Equifax, Inc. ... Experian is a global information solutions company, with operations in over 30 countries around the world, including the USA, UK, most European countries, Argentina, Brazil, South Africa, China, Japan and Australia. ... TransUnion (full name Trans Union LLC) is a consumer credit reporting agency, considered one of the big three agencies in the United States. ...


Americans are entitled to one free credit report within a 12 month period from each of the three agencies. The three credit bureaus run Annualcreditreport.com, where users can get their free credit report, normally without credit scores. Credit scores are available as an add-on feature of the report for a fee. Annualcreditreport. ...


In some states, such as California, a consumer is also entitled to a free credit report within 30 days of being denied credit or receiving sub-normal credit terms from a lender due to their credit rating.


References

  1. ^ Equifax form (Canada)
  2. ^ TransUnion form (Canada)
  3. ^ Understanding Your Credit Report and Credit Score (Canada)

See also

Credit history or credit report is, in many countries, a record of an individuals or companys past borrowing and repaying, including information about late payments and bankruptcy. ... // A credit reference is information, the name of an individual, or the name of an organization that can provide details about an individuals past track record with credit. ... This article does not cite any references or sources. ... A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations. ...

External links


  Results from FactBites:
 
Credit score - Wikipedia, the free encyclopedia (3308 words)
A credit score is a number that represents an estimate of an individual's financial creditworthiness as calculated by a statistical model.
Credit score is affected by recent inquiries made against one's credit report for the purpose of evaluating an applicant for creditworthiness, including insurance.
The credit score is not affected by obtaining a copy of one's own credit report, nor by "promotional" inquiries made by direct marketers such as credit card companies who send out prescreened direct mail offers, nor by "account review" inquiries made periodically by your own financial institution to manage the ongoing risk of your account.
credit score (1389 words)
One strength of credit scoring is that it has a dynamic component - no one bad aspect should totally sink you, just as one good aspect won't guarantee you credit.
Also, your score is unaffected by lender inquiries into your credit report for purposes of making you a "pre-approved" credit offer, or for reviewing your account with them, even though these inquiries may show up on your credit report.
The credit mix is generally not a key factor in determining your score - unless your credit report does not have a lot of other information upon which to base a score.
  More results at FactBites »

 
 

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