When it comes to credit scores, it's the details that count. Credit scores are those elusive numbers that for years were secretive figures seen only by lenders deciding whether to approve a consumer's application.
Within the past year, the major credit bureaus - Equifax, Experian and TransUnion - have begun offering credit scores to consumers in addition to detailed credit reports that show their credit history.
Credit scores assign a number to a person based on the information in the individual's credit report using complex mathematical equations. The number, which summarizes the information in your credit report, is designed to tell credit lenders the likelihood that a consumer will repay a loan.
Jan Davis, executive vice president of consumer products for TransUnion, compared a credit score to a trip to the doctor:
"Your credit score is kind of like your cholesterol number. You can't impact the number directly. You have to look at the underlying reasons," she said.
Scores have gained popularity since the early 1990s, when mortgage lenders began using the figures to make the loan-approval process more objective. Scores are now used by virtually all lenders for loans for homes, autos and credit cards.
There are literally hundreds of different models designed by businesses to come up with a credit score, though the most widely used is the FICO score. It ranges from 300 to a high of 850 and is produced by Fair, Isaac and Company, which pioneered the technology for credit scores in the late 1950s.
Until 1989, the company was developing custom credit scoring models for individual lenders, many of which are still used. But now, at least three-quarters of all mortgage decisions use the FICO score, as do 23 of the largest 25 credit-card issuers and 40 of the 50 largest financial services institutions, said Craig Watts, consumer affairs manager for Fair, Isaac and Company.
Credit scores were originally designed for lenders, and the company has had to work hard to translate a lot of the "insider" language for lenders into user-friendly information for consumers, Watts said.
Fair, Isaac has partnered with Equifax to offer the FICO score through the credit bureau. Competitors TransUnion and Experian offer their own versions of credit scores to the public.
