Credit Scoring Practices around the World

In this part we will explore how different countries utilize credit scoring. We will start our analysis with a general description of credit scoring and then we will deal with different country practices starting with United States.

According to an article quoted to Wikipedia, credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced from credit bureaus.

US Practice
In US, credit scoring is, a number based on a statistical analysis of a person’s past credit history. In theory credit scoring represents the creditworthiness of that person or entity. In other words it is the likelihood that people will pay their bills. Credit scoring is mainly based on some sort of a credit report. That report comes from one of the three major credit bureaus particularly: Experian, TransUnion, and Equifax. Contrary to common sense, income is not considered by the major credit bureaus when calculating a credit score.

We can talk about different methods of calculating credit scores. The most common of all is FICO, the most widely known type of credit score. It is a credit score developed by FICO, previously known as Fair Isaac Corporation.

Today, this method is used by several mortgage lenders who use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender. These bureaus of creditors all have their own credit scoring mechanisms and these are: Equifax’s Experian’s PLUS score, ScorePower, and TransUnion’s credit score. Moreover, each one of them also sells the VantageScore credit score. In addition to that, many of the large lenders, including the major credit card issuers, have developed their own proprietary scoring models. This helps them follow and suit a model which suits their interests most.