A credit score is a numerical rating that attempts to measure a borrower’s creditworthiness. The score indicates the borrower’s general payment behaviors—summarizing how often the person pays their bills and obligations on time. A high credit score does not guarantee that a loan applicant will never default on a mortgage; however, that person represents a statistically smaller risk to a lender than a person with a low score. Lenders and creditors, therefore, are more likely to approve loans and offer their most-favorable terms to people with the highest scores.
The score is based on the data that a person has on record at the Credit Reporting Agency (Bureau).It is common for an individual’s score to differ slightly from one Bureau to another. That’s because the score is developed only from the credit information on file at each particular bureau, and information may vary from one Bureau to the next.The Bureaus can only report the data that is sent to them from the lenders, creditors and companies that report such data to them.
Scores are determined by weighing several factors in a person’s credit record, including payment history, balances, number and types of credit accounts. By using a formula, results can be more objective than humans relying on different criteria to create a measurement. Credit scores do not consider a borrower’s race, gender, religion, age, income, marital status, or national origin. But mathematical formulas have limitations. For example, a person who has always paid cash for purchases will score low due to a lack of credit history. Many lenders, therefore, do not rely exclusively on a credit score and will take other factors into account that may mitigate a poor credit score.