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What Is A Good Credit Score

What is a credit score?

A credit score is a number lenders use to help them decide: "If I give this person a loan or credit card, how likely is it I will get paid back on time?" Credit scores are also called risk scores because they help lenders predict the risk that you will not be able to repay the debt as agreed. Scores are generated by statistical models using elements from your credit report, however scores are not stored as part of your credit history. Rather, scores are generated at the time a lender requests your credit report and then included with the report.

Credit scores are fluid numbers that change as the elements in your credit report change. For example, payment updates or a new account could cause scores to fluctuate. There are many different credit scores used in the financial service industry. Scores may be different from lender to lender (or from car loan to mortgage loan) depending on the type of credit scoring model that was used.

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How scores are calculated

Developers of credit scoring models review a set of consumers – often over a million. The historical credit profiles of the consumers are examined to identify common variables they exhibited. The developers then build statistical models by selecting the credit variables most predictive of future behavior and assigning appropriate weights to each variable.

Models for specific types of loans, such as auto or mortgage, more closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumer's past credit history that most effectively predict future credit behavior.

What's in a credit score?

The information that impacts a credit score varies depending on the score being used. Credit scores are affected by elements in your credit report, such as:
  • Number and severity of late payments
  • Type, number and age of accounts
  • Total debt
  • Public records
Credit scores do not consider the following information:
  • Your race, color, religion, national origin, sex or marital status. U.S. law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
    • Your age.
    • Your salary, occupation, title, employer, date employed or employment history. However, lenders may consider this information in making their approval decisions.
    • Where you live.
    • Certain types of inquiries (requests for your credit report). The score does not count "consumer disclosure inquiry” requests you have made for your credit report in order to check it. It also does not count "promotional inquiry" requests made by lenders in order to make a "pre-approved" credit offer – or "account review inquiry" requests made by lenders to review your account with them. Finally, inquiries for employment purposes are not counted.

History of credit scores

Credit scores came into wide use in the 1980s. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error.

Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer's credit report. This point system helped to eliminate much of the bias that previously existed; however, it was still tied to intuitive measures of creditworthiness and was not based on actual consumer behavior.

Credit granting took a huge leap forward when statistical models were built that considered numerous variables and combinations of variables. These models were built using payment information from thousands of actual consumers, which made scores highly effective in predicting consumer credit behavior. When combined with computer applications, scoring models made the credit granting process extremely fast, efficient and objective, facilitating commerce and helping consumers quickly get the credit they need.

VantageScoreSM

VantageScore is the first credit score developed cooperatively by Experian and the other national credit reporting companies. Development of the VantageScore began in 2005 in direct response to demand for a more consistent and objective approach to credit scoring methodology. Learn more about VantageScore.


VantageScore

Get the facts about this new, easy-to-understand credit score.
Learn more