How are scores are calculated?

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How the Credit Rating System Works

By understanding how credit report ratings work, you can improve your credit report score. Below, we depict how the credit rating system is used and how it affects your credit rankings.

Designers of credit report score models review a set of consumers - often over a million - who opened loans at the same time. They then determine who paid their loan and who did not. Based on this information, a credit report score for an individual is created. The credit profiles of all the consumers in the model who defaulted on the loans are examined to identify common variables exhibited at the time of the loan application. The designers build statistical models that assign weights to each variable. These variables combine to create a credit rating system for accurate credit ratings.

Models for specific types of loans, such as auto or home, closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumer’s past credit history to effectively predict future credit behavior. Hence, credit report ratings are created. As you can imagine, however, credit ratings are continually fluctuating, so the credit report ratings you see now may change as time and credit payments alter. To find out more about credit ratings, continue reading.

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