How Credit Scores Work.

One thing that some people don’t realize is that they don’t have just one credit score, they have several. There is currently more than 100 credit-scoring models being marketed to lenders, the most common being the FICO, which is designed to predict whether a borrower will default. New information is always being added to your report and old information is being deleted. These constant changes can affect your score.

These credit-scoring programs do the following:

Detect fraud in credit or insurance applications
Calculate the amount of profit a credit card issuer is likely to make on a particular amount
Predict the risk of a default by the consumer
Forecast the probability that a policyholder will cost an insurer money
Estimate how much the borrower is likely to pay on any delinquent account
Anticipate which customers might close a credit card account or pay the balance to zero
Predict the likelihood that someone will respond to a direct-mail credit card solicitation
Lenders are most likely to base their decisions off of the FICO score or its cousin, the NextGen score, than any other type of credit score. FICO is the industry leader and is used in about 75 percent of mortgage-lending assessments.