An individual’s credit score represents a person’s credit worthiness. The score, represented numerically, is determined using a statistical analysis of the person’s credit history.

What Is A Credit Score Used For?

Lenders use an individual’s credit score in determining the following:

1. To forecast future payment and credit behaviours, for instance the likelihood of the individual defaulting on repayments.
2. To determine the interest rate the individual will pay when borrowing money.
3. To set credit limits on credit cards and store cards.
4. Some insurers reference an individual’s credit score to determine the cost of the insurance for the individual. Many insurers believe that individuals with low credit scores are more likely to make claims against their insurance policies.

Information Used To Determine The Credit Score

In order to compute an individual’s credit score their current debt details, including the amount and type of debt, are analysed and compared with their repayment history. The following factors are considered:

1. Previous payment behaviour
2. The total outstanding debt at other lenders
3. How long the individual has held the outstanding debt
4. Existing enquiries from other prospective lenders
5. The type of credit the individual uses
6. How much credit is available to the individual from other lenders
7. How much of the available credit the individual is currently using

How The Credit Score Is Calculated

The most common method in determining a credit score is logistic probability modelling, although alternative methods such as MARS, C&RT, CHAID and Random Forests may also be used.

Who Has Access To An Individual’s Credit Score?

Lenders such as banks and credit card providers can purchase an applicant’s credit score from a credit agency. Other organisations such as mobile phone service providers, insurance companies, employers, landlords and government departments can employ similar credit scoring techniques as part of the individual’s background check or risk assessment.