Credit scoring is a system creditors use to help determine whether to give you credit and how much to charge you for it.
Information about you and your credit experiences, like 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 formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. 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 on time. Generally, consumers who are good credit risks have higher credit scores.
For more information, see “Need Credit or Insurance? Your Credit Score Helps Determine What You’ll Pay” at http://www.ftc.gov/bcp/menus/consumer/credit.shtm.