Many times clients ask, ‘why is credit scoring used?’
Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals. In order to give credit to everyone a basic model is needed to determine credit reliability and credit worthiness by you, the consumer and debtor. Credit scores are very important to potential lenders because your credit score and credit report offer them a snapshot of your financial history and they use your credit score to help them determine whether or not you are a risky borrower. Your credit score helps to determine if you will be approved for a loan or line of credit and what type of interest rate you will receive on the loan.