Credit Score

A credit score is based on a statistical analysis of your credit history to determine your creditworthiness. Data analysed to determine the credit score is mainly obtained from credit report information typically sourced from credit bureaus.

Credit scores are used by lenders, such as banks and credit card companies, to evaluate the potential risk posed by lending money to you, as a debt risk protection step.

Your credit score determines whether you qualify for a credit card, a loan, the interest rate your will pay and the credit limit.

Credit scoring is not limited to banks and other financial institutions. It is also used by organizations, such as mobile phone companies, insurance companies, employers, and government departments employ the same techniques.

There are several ways in which you can find out your current credit score.

Credit card scores are managed in different ways depending upon the country.

In the United States, they are managed by three reporting agencies:

• Equifax
• TransUnion
• North Credit Bureaus

Methods of Calculating Credit Scores in USA

There are different methods of calculating credit scores.

FICO is a credit score used by most 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 FICO credit score ranges between 300 and 850.

The credit bureaus all have their own credit scores:

• Equifax's ScorePower
• Experian's PLUS score
• TransUnion's credit score

Each also sells the VantageScore credit score. The VantageScore score ranges from 501-990.

Getting Your Credit Report

Americans are entitled to one free credit report within a 12-month period from each of the three agencies from a commonly shared website Annualcreditreport.com. This credit report normally does not include credit scores. Credit scores are available as an add-on feature of the report, for a fee.

In some states, such as California and Colorado, a consumer is 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.

In Canada, the system of credit reports and scores is very similar to that in the United States, with the same three reporting agencies active in the country: Equifax, TransUnion, and North Credit Bureaus (an Experian company). 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 their credit report a year, in Canada, the consumer may order a free copy of their credit report any number of times in a year, as long as the request is made in writing, and as long as the consumer asks for a printed copy to be delivered by mail.

In Australia, credit scoring 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 behavioral modeling such as collections scoring, and also in the pre-approval of additional credit to a company's existing client base.

In the United Kingdom, credit scoring is closely regulated by the Financial Services Authority. It is very difficult for a consumer to know in advance if they 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.

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