How do credit scores work, and why do they vary between different reporting agencies?
In: Economics
A credit score, in the simplest sense, is supposed to be a measurement of the risk of loaning you money. There’s always a chance someone doesn’t pay back a loan.
Just like if you loan two friends $20 each. The one who is reliable, has money, and always pays you back on time is a great person to loan money to. The guy who takes the cash, makes excuses, and says “ah yeah I don’t have it this week” and never pays you back or says they can only pay half of it isn’t a great person to loan to.
Roughly, a credit score tries to find out who is who in that situation.
Different agencies have slightly different calculation methods, and may get slightly different data to make their calculations on, but its not important they are all about the same
Latest Answers