Credit Scores: What Are They? How Do They Work?
Credit scores assist lenders to decide whether to approve loan applications or not and determine what credit terms are offered. Scores are generated by algorithms that use information from your credit reports that summarize your credit history. Fundamentals of Credit Score Credit scores are developed to assist lenders to make decisions. Banks and credit unions want to know the risk of your loan defaulting, so they look for clues about your credit history. They want to know, for example, whether you have borrowed money and successfully repaid loans, or whether you have recently stopped payments on multiple loans. Instead of scouring the credit reports for each applicant for 20 minutes, looking at a score gives lenders a quick and general idea of the applicant's credit rating. Borrowers can also be beneficial. Lenders are less able to use their subjective judgment when a score tells them most of what they need to know. Scores should not differentiate based on how you look or how you ...