A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the
creditworthiness
A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased c ...
of an individual. A credit score is primarily based on a
credit report
:''This article deals with the general concept of the term credit history. For detailed information about the same topic in the United States, see Credit score in the United States.''
A credit history is a record of a borrower's responsible repay ...
, information typically sourced from
credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
s.
Lenders, such as
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s 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
Bad debt, occasionally called uncollectible accounts expense, is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons, often due to the debtor not ...
. Lenders use credit scores to determine who qualifies for a loan, at what
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ the same techniques. Digital finance companies such as online lenders also use alternative data sources to calculate the creditworthiness of borrowers.
By country
Australia
In Australia, credit scoring is widely accepted as the primary method of assessing creditworthiness. Credit scoring is used not only to determine whether credit should be approved to an applicant, but for credit scoring in the setting of credit limits on credit or store cards, in behavioral modelling such as collections scoring, and also in the pre-approval of additional credit to a company's existing client base.
Although
logistic (or
non-linear
In mathematics and science, a nonlinear system is a system in which the change of the output is not proportional to the change of the input. Nonlinear problems are of interest to engineers, biologists, physicists, mathematicians, and many other ...
) probability modelling is still the most popular means by which to develop scorecards, various other methods offer powerful alternatives, including
MARS
Mars is the fourth planet from the Sun and the second-smallest planet in the Solar System, only being larger than Mercury (planet), Mercury. In the English language, Mars is named for the Mars (mythology), Roman god of war. Mars is a terr ...
,
CART
A cart or dray (Australia and New Zealand) is a vehicle designed for transport, using two wheels and normally pulled by one or a pair of draught animals. A handcart is pulled or pushed by one or more people.
It is different from the flatbed tr ...
,
CHAID, and
random forest
Random forests or random decision forests is an ensemble learning method for classification, regression and other tasks that operates by constructing a multitude of decision trees at training time. For classification tasks, the output of th ...
s.
Prior to 12 March 2014
Veda Advantage
Veda Advantage was the largest credit reference agency in Australia and New Zealand, before it was acquired by Equifax in February 2016. It provided credit reporting, credit scoring, and marketing analytics services.
The Company was previously ...
, the main provider of credit file data, provided only a negative credit reporting system containing information on applications for credit and adverse listings indicating a default under a credit contract. Veda was acquired by Equifax in Feb 2016, making Equifax the largest credit agency in Australia.
With the subsequent introduction of positive reporting, lending companies have begun an uptake of its usage with some implementing
risk based pricing
Risk-based pricing is a methodology adopted by many lenders in the mortgage and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees. The interest rate on ...
to set lending rates.
Austria
In
Austria
Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
, credit scoring is done as a blacklist. Consumers who did not pay bills end up on the blacklists that are held by different
credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
s. Having an entry on the black list may result in the denial of contracts. Certain enterprises including telecom carriers use the list on a regular basis. Banks also use these lists, but rather inquire about security and income when considering loans. Beside these lists several agencies and credit bureaus provide credit scoring of consumers.
According to the
Austrian Data Protection Act, consumers must opt-in for the use of their private data for any purpose. Consumers can also withhold permission to use the data later, making illegal any further distribution or use of the collected data. Consumers also have the right to receive a free copy of all data held by credit bureaus once a year. Wrong or unlawfully collected data must be deleted or corrected.
Brazil
Credit scoring is relatively new in Brazil. Previously, credit reporting was done as a blacklist and each lender used to assess potential borrowers on their own criteria. Nowadays, the system of credit reports and scores in Brazil is very similar to that in the United States.
A credit score is a number based on a statistical analysis of a person's credit information, which represents the creditworthiness of that person. It is the most important tool used by financial institutions during a credit analysis that aims to assist the decision-making process of granting credit and conducting business, in order to verify the likelihood that people will pay their bills. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus:
Serasa Experian,
Boa Vista (previously
Equifax do Brasil) and
SPC Brasil.
There are different methods of calculating credit scores in Brazil. In general, scores range from 0 to 1000 indicating what is the chance of a certain profile of consumers paying their bills on time in the next 12 months. The score is calculated from several factors, but practically it analyzes a person's trajectory as a consumer, what includes up to date payments of bills, history of negative debts, financial relationships with companies and updated personal data on credit protection agencies, such as Serasa Experian, Boa Vista, SPC, Quod and Foregon.
Canada
The system of credit reports and scores in Canada is very similar to that in the United States and India, with two of the same reporting agencies active in the country:
Equifax
Equifax Inc. is an American multinational consumer credit reporting agency headquartered in Atlanta, Georgia and is one of the three largest consumer credit reporting agencies, along with Experian and TransUnion (together known as the "Big Thr ...
and
TransUnion
TransUnion is an American consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including "200 million files profiling nearly every credit-active consum ...
. (
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
, which entered the Canadian market with the purchase of Northern Credit Bureaus in 2008, announced the closing of its Canadian operations as of 18 April 2009).
There are, however, some key differences. One is that, unlike in 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. Borrowell and CreditKarma offers free credit report and credit check and this request by the consumer is noted in the credit report as a 'soft inquiry', so it has no effect on their credit score. According to Equifax's ScorePower Report, Equifax Beacon scores range from 300 to 900. Trans Union Emperica scores also range from 300 and 900.
The
Government of Canada
The government of Canada (french: gouvernement du Canada) is the body responsible for the federal administration of Canada. A constitutional monarchy, the Crown is the corporation sole, assuming distinct roles: the executive, as the ''Crown ...
offers a free publication called ''Understanding Your Credit Report and Credit Score''. 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
Identity theft occurs when someone uses another person's personal identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes. The term ''identity theft'' was co ...
has occurred. The publication is available online at the
Financial Consumer Agency of Canada
The Financial Consumer Agency of Canada (FCAC) is an agency of the Government of Canada that enforces consumer protection legislation, regulations and industry commitments by federally regulated financial entities. It also provides programs and i ...
. Paper copies can also be ordered at no charge for residents of Canada.
China
Private companies have developed credit score systems, these systems include
Sesame Credit
Zhima Credit (), also known as Sesame Credit, is a private credit scoring and loyalty program system developed by Ant Group, an affiliate of the Chinese Alibaba Group. It uses data from Alibaba's services to compile its score. Customers receive a ...
, which is provided by Alibaba affiliate Ant Financial, and
Tencent Credit.
Denmark
The credit scoring is widely used in Denmark by the banks and a number of private companies within telco and others. The credit scoring is split in two:
* Private: The probability of defaulting
* Businesses: The probability of bankruptcy
For privates, the credit scoring is always made by the creditor. For businesses it is either made by the creditor or by a third party.
There are a few companies who have specialized in developing credit scorecards in Denmark:
*
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
(generic rating for business)
*
Bisnode
Bisnode was a company that offers decision support in the form of digital business information, business, marketing and credit information. Founded in 1989, Bisnode was owned 70 percent by Ratos and 30 percent by Bonnier Group, Bonnier. In 2020 ...
(generic rating for business)
The credit scorecards in Denmark are mainly based on information provided by the applicant and publicly available data. It is very restricted by legislation compared to its neighbouring countries.
Germany
In Germany, credit scoring is widely accepted as the primary method of assessing creditworthiness. Credit scoring is used not only to determine whether credit should be approved to an applicant, but for credit scoring in the setting of credit limits on credit or store cards, in behavioral modelling such as collections scoring, and also in the pre-approval of additional credit to a company's existing client base.
Consumers have the right to receive a free copy of all data held by credit bureaus once a year. At present
Schufa
Schufa Holding AG (german: Schutzgemeinschaft für allgemeine Kreditsicherung; English: ''General Credit Protection Agency'') is a German private credit bureau supported by creditors. It has its headquarters in Wiesbaden, the capital of Hessen, G ...
, the main provider of credit file data, provides scores for about three-quarters of the German population.
India
In
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
, there are four credit information companies licensed by
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
. The Credit Information Bureau (India) Limited (
CIBIL
TransUnion CIBIL Limited is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, ...
) has functioned as a Credit Information Company from January 2001.
Subsequently, in 2010,
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
,
Equifax
Equifax Inc. is an American multinational consumer credit reporting agency headquartered in Atlanta, Georgia and is one of the three largest consumer credit reporting agencies, along with Experian and TransUnion (together known as the "Big Thr ...
and
CRIF High Mark were given licenses by
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for ...
to operate as Credit Information Companies in India. Transunion bought CIBIL.
Although all the four credit information companies have developed their individual credit scores, the most popular is
CIBIL
TransUnion CIBIL Limited is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, ...
credit score. The
CIBIL
TransUnion CIBIL Limited is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, ...
credit score is a three digit number that represents a summary of individuals' credit history and credit rating. This score ranges from 300 to 900, with 900 being the best score. Individuals with no credit history will have a score of −1. If the credit history is less than six months, the score will be 0.
CIBIL
TransUnion CIBIL Limited is a credit information company operating in India. It maintains credit files on 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is part of TransUnion, ...
credit score takes time to build up and usually it takes between 18 and 36 months or more of credit usage to obtain a satisfactory credit score.
Norway
In
Norway
Norway, officially the Kingdom of Norway, is a Nordic country in Northern Europe, the mainland territory of which comprises the western and northernmost portion of the Scandinavian Peninsula. The remote Arctic island of Jan Mayen and t ...
, credit scoring services are provided by three credit scoring agencies:
Dun & Bradstreet
The Dun & Bradstreet Corporation is an American company that provides commercial data, analytics, and insights for businesses. Headquartered in Jacksonville, Florida, the company offers a wide range of products and services for risk and financia ...
,
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
and Lindorff Decision. Credit scoring is based on publicly available information such as demographic data, tax returns, taxable income and any ''Betalingsanmerkning'' (non-payment records) that might be registered on the credit-scored individual. Upon being scored, an individual will receive a notice (written or by e-mail) from the scoring agency stating who performed the credit score as well as any information provided in the score. In addition, many credit institutions use custom scorecards based on any number of parameters. Credit scores range between 300 and 999.
Republic of Ireland
In the
Republic of Ireland
Ireland ( ga, Éire ), also known as the Republic of Ireland (), is a country in north-western Europe consisting of 26 of the 32 counties of the island of Ireland. The capital and largest city is Dublin, on the eastern side of the island. A ...
, a person's credit score is calculated by the Irish Credit Bureau (ICB), a private organisation, financed by its members (financial institutions and local authorities). A person taking out a loan must consent to their data being given to the ICB.
A person may receive their own credit report on paying a €6 fee to the ICB. Credit scores run from 224 (the worst value) to 581 (the best value).
There is also a separate Central Credit Register (CCR) maintained by the
Central Bank of Ireland
The Central Bank of Ireland ( ga, Banc Ceannais na hÉireann) is Ireland's central bank, and as such part of the European System of Central Banks (ESCB). It is the country's financial services regulator for most categories of financial firms ...
, founded in 2017 under the terms of the
Credit Reporting Act 2013
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
. The lender must check the CCR if a person is borrowing more than €2,000, and can also check it if the loan is lower; consent from the borrower is not required.
Information is removed from both registers (ICB and CCR) five years after the loan is repaid.
South Africa
Credit scoring is used throughout the credit industry in
South Africa
South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring countri ...
, with the likes of banks, micro-lenders, clothing retailers, furniture retailers, specialized lenders and insurers all using credit scores. Currently all four retail
credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
offer credit bureau scores. The data stored by the credit bureaus include both positive and negative data, increasing the predictive power of the individual scores.
TransUnion
TransUnion is an American consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including "200 million files profiling nearly every credit-active consum ...
(formerly ITC) offer the Empirica Score which is, as of mid-2010, in its 4th generation. The Empirica score is segmented into two suites: the account origination (AO) and account management (AM).
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
South Africa likewise has a Delphi credit score with their fourth generation about to be released (late 2010). In 2011,
Compuscan
Compuscan is a South African credit bureau that provides consumer and commercial credit information within South Africa and other African nations.
Founded in 1994 and headquartered in Stellenbosch, South Africa, Compuscan is a subsidiary of So ...
released Compuscore ABC, a scoring suite which predicts the probability of customer default throughout the credit life cycle. Six years later, Compuscan introduced Compuscore PSY, a 3-digit psychometric-based credit bureau score used by lenders to make informed lending decisions on thin files or marginal declines.
Sri Lanka
According to the provisions of Credit Information Bureau Act No 18 of 1990 (as amended by Act No 42 of 2008),
CRIB has been delegated with power to issue credit reports to any subject to whom that information is related to. The Bureau commenced to issue Self Inquiry Credit Reports in December 2009.
Sweden
Sweden has a system for credit scoring that aims to find people with a history of neglect to pay bills or, most commonly, taxes. Anyone who does not pay their debts on time, and fails to make payments after a reminder, will have their case forwarded to the Swedish
Enforcement Authority
The Swedish Enforcement Authority ( sv, Kronofogdemyndigheten; literally: ''The Crown Bailiff Authority'') is a government agency in charge of debt collection, distraint, evictions, and the enforcement of court orders in Sweden. The authority also ...
which is a national authority for collecting debts. The mere appearance of a company, or government office, as a debtor to this authority will result in a record among private credit bureaus; however, this does not apply to individuals as debtors. This record is called a ''Betalningsanmärkning'' (non-payment record) and by law can be stored for three years for an individual and five years for a company. This kind of nonpayment record will make it very difficult to get a loan, rent an apartment, get telephone subscriptions, rent a car or get a job where you handle cash. The banks, also use income and asset figures in connection with loan assessments.
If a person gets an injunction to pay issued by the Enforcement Authority, it is possible to dispute it. Then the party requesting the payment must show its correctness in district court. Failure to dispute is seen as admitting the debt. If the debtor loses the court trial, costs for the trial are added to the debt. Taxes and authority fees must always be paid on demand unless payment has already been made.
Every person with a Swedish
national identification number
A national identification number, national identity number, or national insurance number or JMBG/EMBG is used by the governments of many countries as a means of tracking their citizens, permanent residents, and temporary residents for the purp ...
must register a valid address, even if living abroad, since sent letters are considered to have been delivered to that person once they reach the registered address. As an example, Swedish astronaut
Christer Fuglesang
Arne Christer Fuglesang (born 18 March 1957) is a Swedish physicist and an ESA astronaut. He was first launched aboard the STS-116 Space Shuttle mission on 10 December 2006, making him the first Swedish citizen in space.
Married with three child ...
got a ''Betalningsanmärkning'' since a car he had ordered, and therefore owned, passed a toll station for the
Stockholm congestion tax. At the time, he was living in the USA training for his first
Space Shuttle mission and had an old invalid address registered for the car. Letters with payment requests did not reach him on time. The case was appealed and retracted, but the non-payment record remained for three years since it could not be retracted according to the law.
United Kingdom
Credit scoring in the United Kingdom is very different to that of the United States and other nations. There is no such thing as a universal credit score or credit rating in the UK. Each lender will assess potential borrowers on their own criteria, and these algorithms are effectively trade secrets.
"Credit scores" which are available for individuals to see and provided from
Credit Reference Agencies such as Call Credit,
Equifax
Equifax Inc. is an American multinational consumer credit reporting agency headquartered in Atlanta, Georgia and is one of the three largest consumer credit reporting agencies, along with Experian and TransUnion (together known as the "Big Thr ...
,
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
and
TransUnion
TransUnion is an American consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including "200 million files profiling nearly every credit-active consum ...
are marketed to consumers and are not usually used by lenders. Most lenders instead use their own internal scoring mechanism.
The most popular statistical technique used is
logistic regression
In statistics, the logistic model (or logit model) is a statistical model that models the probability of an event taking place by having the log-odds for the event be a linear function (calculus), linear combination of one or more independent var ...
to predict a binary outcome: bad debt (meaning the borrower has defaulted on the loan) or not. 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.
Credit scoring is closely regulated only by the
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
when used for the purposes of the Advanced approach to Capital Adequacy under
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III.
The Basel II Accord was publis ...
regulations.
Credit scoring is closely regulated in the UK, with the industry regulator being the
Information Commissioner's Office
The Information Commissioner's Office (ICO) is a non-departmental public body which reports directly to the Parliament of the United Kingdom and is sponsored by the Department for Digital, Culture, Media and Sport (DCMS). It is the independe ...
(ICO). Consumers can also send complaints to the
Financial Ombudsman Service
The Financial Ombudsman Service is an ombudsman in the United Kingdom. It was established in 2000, and given statutory powers in 2001 by the Financial Services and Markets Act 2000, to help settle disputes between consumers and UK-based bus ...
if they experience problems with any Credit Reference Agency.
It is very difficult for a consumer to know in advance whether they have a high enough credit score to be accepted for credit with a given lender. This situation is due to the complexity and structure of credit scoring, which differs from one lender to another.
Lenders need not reveal their credit score head, nor need they reveal the minimum credit score required for the applicant to be accepted, because there may not be such a minimum score.
If the applicant is declined for credit, the lender is not obliged to reveal the exact reason why. However industry associations including the
Finance and Leasing Association
The Finance and Leasing Association (FLA) is the leading trade association for the UK consumer credit, motor finance and asset finance sectors, and the largest organisation of its type in Europe. Members of FLA include: banks, subsidiaries of ba ...
oblige their members to provide a satisfactory reason. Credit-bureau data sharing agreements also require that an applicant declined based on credit-bureau data is told that this is the reason and the address of the credit bureau must be provided.
United States
In the United States, a credit score is a number based on a statistical analysis of a person's credit files, that in theory represents the
creditworthiness
A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased c ...
of that person, which is the likelihood that people will pay their bills. A credit score is primarily based on
credit report
:''This article deals with the general concept of the term credit history. For detailed information about the same topic in the United States, see Credit score in the United States.''
A credit history is a record of a borrower's responsible repay ...
information, typically from one of the three major
credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
s:
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
,
TransUnion
TransUnion is an American consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including "200 million files profiling nearly every credit-active consum ...
, and
Equifax
Equifax Inc. is an American multinational consumer credit reporting agency headquartered in Atlanta, Georgia and is one of the three largest consumer credit reporting agencies, along with Experian and TransUnion (together known as the "Big Thr ...
. Income and employment history (or lack thereof) are not considered by the major credit bureaus when calculating credit scores.
There are different methods of calculating credit scores.
FICO score
A credit score is a number that provides a comparative estimate of an individual's creditworthiness based on an analysis of their credit report. It is an inexpensive and main alternative to other forms of consumer loan underwriting.
Lenders, s ...
s, the most widely used type of credit score, is a credit score developed by
FICO
FICO (legal name: Fair Isaac Corporation), originally Fair, Isaac and Company, is a data analytics company based in Bozeman, Montana, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956. Its FICO score, a me ...
, previously known as
Fair Isaac Corporation
FICO (legal name: Fair Isaac Corporation), originally Fair, Isaac and Company, is a data analytics company based in Bozeman, Montana, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956. Its FICO score, a meas ...
. As of 2018, there were 29 different versions of FICO scores in use in the United States. Some of these versions are "industry specific" scores, that is, scores produced for particular market segments, including automotive lending and bankcard (credit card) lending. Industry-specific FICO scores produced for automotive lending are formulated differently than FICO scores produced for bankcard lending. Nearly every consumer will have different FICO scores depending upon which type of FICO score is ordered by a lender; for example, a consumer with several paid-in-full car loans but no reported credit card payment history will generally score better on a FICO automotive-enhanced score than on a FICO bankcard-enhanced score. FICO also produces several "general purpose" scores which are not tailored to any particular industry. Industry-specific FICO scores range from 250 to 900, whereas general purpose scores range from 300 to 850.
FICO scores are 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. For most mortgages originated in the United States, three credit scores are obtained on a consumer: a Beacon 5.0 score (Beacon is a trademark of FICO) which is calculated from the consumer's Equifax credit history, a FICO Model II score, which is calculated from the consumer's Experian credit history, and a Classic04 score, which is calculated from the consumer's Trans Union history.
Credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
s also often re-sell FICO scores directly to consumers, often a general-purpose FICO 8 score. Previously, the credit bureaus also sold their own credit scores which they developed themselves, and which did not require payment to FICO to utilize:
Equifax
Equifax Inc. is an American multinational consumer credit reporting agency headquartered in Atlanta, Georgia and is one of the three largest consumer credit reporting agencies, along with Experian and TransUnion (together known as the "Big Thr ...
's RISK score and
Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
's PLUS score. However, as of 2018, these scores are no longer sold by the credit bureaus. Trans Union offers a Vantage 3.0 score for sale to consumers, which is a version of the
VantageScore
VantageScore is a consumer credit-scoring system in the United States, created through a joint venture of the three major credit bureaus ( Equifax, Experian, and TransUnion). The model is managed and maintained by an independent company, Vantage ...
credit score. In addition, many large lenders, including the major credit card issuers, have developed their own proprietary scoring models.
Studies have shown scores to be predictive of risk in the underwriting of both credit and insurance.
[Credit-based insurance scores: Impacts on consumers of automobile insurance]
Some studies even suggest that most consumers are the beneficiaries of lower credit costs and insurance premiums due to the use of credit scores.
[
Usage of credit histories in employment screenings increased from 19% in 1996 to 42% in 2006.] However, credit reports for employment screening purposes do not include credit scores.
Americans are entitled to one free credit report in every 12-month period from each of the three credit bureaus, but are not entitled to receive a free credit score. The three credit bureaus run Annualcreditreport.com, where users can get their free credit reports. Credit scores are available as an add-on feature of the report for a fee. If the consumer disputes an item on a credit report obtained using the free system, under the Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 ''et seq'', is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. It ...
(FCRA), the credit bureaus have 45 days to investigate, rather than 30 days for reports obtained otherwise.
Alternatively, consumers wishing to obtain their credit scores can in some cases purchase them separately from the credit bureaus or can purchase their FICO score directly from FICO
FICO (legal name: Fair Isaac Corporation), originally Fair, Isaac and Company, is a data analytics company based in Bozeman, Montana, focused on credit scoring services. It was founded by Bill Fair and Earl Isaac in 1956. Its FICO score, a me ...
. Credit scores (including FICO scores) are also made available free by subscription to one of the many credit report monitoring
Credit report monitoring or company tracking is the monitoring of one's credit history in order to detect any suspicious activity or changes. Companies offer such service on a subscription basis, typically granting regular access to one's credit ...
services available from the credit bureaus or other third parties, although to actually get the scores free from most such services, one must use a credit card to sign up for a free trial subscription of the service and then cancel before the first monthly charge. Websites like WalletHub
WalletHub (formerly CardHub.com) is a personal finance website that was launched in August 2013. It is based in Miami and owned by Evolution Finance, Inc.
WalletHub offers free consumer tools, such as its WalletLiteracy Quiz and its Financial ...
, Credit Sesame
Credit Sesame is a credit and loan company. Credit Sesame was launched in private beta at TechCrunch Disrupt
TechCrunch is an American online newspaper focusing on high tech and startup companies. It was founded in June 2005 by Archimedes Ve ...
and Credit Karma
Credit Karma is an American multinational personal finance company founded in 2007, which has been a brand of Intuit since December 2020. It is best known as a free credit and financial management platform, but its features also include monitor ...
provide free credit scores with no credit card required, using the TransUnion
TransUnion is an American consumer credit reporting agency. TransUnion collects and aggregates information on over one billion individual consumers in over thirty countries including "200 million files profiling nearly every credit-active consum ...
VantageScore 3.0 model. Credit.com uses the Experian
Experian is an American–Irish multinational data analytics and consumer credit reporting company. Experian collects and aggregates information on over 1 billion people and businesses including 235 million individual U.S. consumers and more t ...
VantageScore 3.0 model. Until March 2009, holders of credit cards issued by Washington Mutual
Washington Mutual (often abbreviated to WaMu) was the United States' largest savings and loan association until its collapse in 2008.
A savings bank holding company is defined in United States Code: Title 12: Banks and Banking; Section 1842: Def ...
were offered a free FICO score each month through the bank's Web site. (Chase
Chase or CHASE may refer to:
Businesses
* Chase Bank, a national bank based in New York City, New York
* Chase Aircraft (1943–1954), a defunct American aircraft manufacturing company
* Chase Coaches, a defunct bus operator in England
* Chase Co ...
, which took over Washington Mutual in 2008, discontinued this practice in March 2009.) Chase
Chase or CHASE may refer to:
Businesses
* Chase Bank, a national bank based in New York City, New York
* Chase Aircraft (1943–1954), a defunct American aircraft manufacturing company
* Chase Coaches, a defunct bus operator in England
* Chase Co ...
resumed the practice of offering a free FICO score in March 2010 of select card members to the exclusion of the majority of former WAMU card holders.
Under the Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 ''et seq'', is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. It ...
, a consumer is entitled to a free credit report (but not a free credit score) within 60 days of any adverse action (e.g., being denied credit, or receiving substandard credit terms from a lender) taken as a result of their credit score. Under the Wall Street reform Wall Street reforms are reforms or regulations of the financial industry in the United States.
Wall Street is the home of the country's two largest stock exchanges, and "Wall Street" is a metonym for the United States financial sector. Major W ...
bill passed on 22 July 2010, a consumer is entitled to receive a free credit score if they are denied a loan or insurance due to their credit score.
In the United States, the median
In statistics and probability theory, the median is the value separating the higher half from the lower half of a data sample, a population, or a probability distribution. For a data set, it may be thought of as "the middle" value. The basic fe ...
generic FICO score was 723 in 2006 and 711 in 2011. The performance definition of the FICO risk score (its stated design objective) is to predict the likelihood that a consumer will go 90 days past due or worse in the subsequent 24 months after the score has been calculated. The higher the consumer's score, the less likely he or she will go 90 days past due in the subsequent 24 months after the score has been calculated. Because different lending uses (mortgage, automobile, credit card) have different parameters, FICO algorithms are adjusted according to the predictability of that use. For this reason, a person might have a higher credit score for a revolving credit card debt when compared to a mortgage credit score taken at the same point in time.
See also
* Alternative data In economic policy, alternative data refers to the inclusion of non-financial payment reporting data in credit files, such as telecom and energy utility payments.
Types of alternative data
Alternative data in the broadest sense refers to any non-f ...
* Bank statement
A bank statement is an official summary of financial transactions occurring within a given period for each bank account held by a person or business with a financial institution. Such statements are prepared by the financial institution, are nu ...
* Credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit repor ...
* Credit history
:''This article deals with the general concept of the term credit history. For detailed information about the same topic in the United States, see Credit score in the United States.''
A credit history is a record of a borrower's responsible repay ...
* Credit reference
* Credit repair software
* Credit scorecards Credit analysis is the understanding and evaluation to check if an individual, organization, or business is worthy of credit.
Credit Risk scorecards are mathematical models which use a formula that consists of data elements or variables that are u ...
References
External links
*
*
*
*
*
{{DEFAULTSORT:Credit Score
Personal finance