What Is Credit Scoring

Through credit scoring, lenders try to push personal judgment away from credit evaluation. Credit scoring data from auto loans, department store accounts, and credit cards prove that computer statistical programs can distinguish platinum, gold, copper, lead, and plastic far better than backoffice loan clerks or front-office loan reps.

To create these credit-scoring programs, math whizzes study the credit profiles, borrowing habits, and payback records for millions of people. Then they search for statistically significant correlations that tend to rate borrowers along a continuum from walk-on-water (say, 800 or higher) to neck-deep (say, 550 or lower). Credit scores range from 350 to 850, but more than 80 percent of Americans score between 600 and 800.

Borrowing Basics

Borrowing Basics

Some small business persons cannot understand why a lending institution refused to lend them money. Others have no trouble getting funds, but they are surprised to find strings attached to their loans.

Get My Free Ebook

Post a comment