Credit Scoring is an automated evaluation tool used to determine the probability that a loan will not default over a pre-determined period of time. Scores are determined by statistical models that assign points to factors indicative of repayment, or probability of non-payment. Credit Scoring evaluates information from both the credit application as well as information from the individual's Credit Report. Scoring is also used for other purposes including insurance risk, marketing, and collections.
Most lenders utilize scoring today.
It must be remembered that the lender determines the level of risk it is willing to incur and not the Credit Score . The lender establishes a cutoff score that equates to the highest level of risk it is willing to accept. The information on your Credit Report is combined with your demographic information and in minutes, your Credit Score can be determined. If your score is above the cutoff, you are approved for a loan. If you are below the cutoff, you are declined.