Credit bureaus today use automated credit scoring to help with the approval of credit applications. Using modern credit scoring systems, credit bureaus are able to evaluate millions of consumer applications quickly, consistently, and impartially based on several different characteristics.
Credit scores are unique to each credit bureau
Your credit score may be different with each credit bureau because your information with each credit bureau might be different.
Credit scores can increase sales or reduce credit risk
Each lender decides how it will incorporate credit scores into its credit approval process. The importance it attributes to credit scores will depend on the lender's tolerance for credit risk. Lenders regularly modify the "threshold" score at which they will approve a credit application.
Your good credit score saves you money
Credit scoring models are used for more than only accepting or declining credit applications. Credit scores can be tools used to decide what risk is associated with ranges of scores and how much to charge for that risk. Every applicant's individual credit score will fall within a "risk" class. The lender may have a policy that says that higher risk classes of credit applicants will be charged a higher rate of interest to reflect the higher risk associated with those classes. The lender hopes that the increase in interest revenue will more than offset the increase in bad debt write-offs that will occur in the group whose credit score is lower. This last point is critical. If you can increase your credit score you can drive better deals that will save you money.
Credit scoring is based on volume
Credit scoring assumes that all consumers with similar scores will behave similarly when it comes to paying their bills on time. In order to be effective, credit scoring systems must be based on a large enough number of consumers to make them statistically valid.
Improving your credit score
You, the consumer, can influence your credit score by managing the factors within your control. This requires an understanding of how credit scoring works. Credit scoring involves assigning a value, usually points, to different factors that will be used to predict the likelihood of you paying your loan back as agreed.
