Credit score

Credit Score

A Credit Score (pronunciation: /ˈkrɛdɪt skɔːr/) is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual.

Etymology

The term "Credit Score" is derived from the English words "credit" and "score". "Credit" comes from the Latin credere, which means "to believe", and "score" originates from the Old Norse skor, meaning "notch" or "tally". Together, they represent a measure of trust or belief in an individual's ability to repay debts.

Definition

A Credit Score is primarily based on a credit report information typically sourced from credit bureaus. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.

Calculation

Credit scores are calculated using various factors including payment history, amounts owed, length of credit history, new credit, and types of credit used. The most widely known type of credit score is the FICO score. This score ranges from 300 to 850 and is used by lenders to determine credit risk.

Related Terms

Credit Report: A detailed report of an individual's credit history.
Credit Bureau: An agency that collects and researches individual credit information and sells it for a fee to creditors.
FICO Score: A type of credit score created by the Fair Isaac Corporation.
Credit History: A record of a borrower's responsible repayment of debts.
Credit Risk: The risk of default on a debt that may arise from a borrower failing to make required payments.