A credit score is a credit rating which represents an estimate of an individual's creditworthiness as calculated by a statistical model. A credit score attempts to quantify the likelihood a borrower will fail to repay a loan. A credit score is typically based on the information in a credit report. Lenders use credit scores to manage the risk posed by lending to consumers.
Examples of such uses include determining who qualifies for a loan, assigning the interest rate, assigning credit limits, and managing accounts that are already open (for example, treatment of accounts that are in default). While the most widely-known score in the United States is FICO, there are many others, such as NextGen and Vantage.
The three major credit reporting agencies, (Equifax, Experian and Trans Union) calculate their own FICO scores.
FICO scores and its variants are designed to measure the risk of default, by taking into account various factors. Although the exact formula for calculating the FICO score is a closely guarded secret, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:
* 35% punctuality of payment in the past
* 30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
* 15% length of credit history
* 10% types of credit used (installment, revolving, consumer finance)
* 10% recent search for credit and/or amount of credit obtained recently