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What is Credit Scoring? Your credit score represents your history of how you have handled previous financial transactions and is
 

Summary: What is Credit Scoring?
Your credit score represents your history of how you have handled previous financial transactions and is
an indication of how you will handle future financial situations. The lower your credit score, the more
likely you are to default on your loan. A higher credit score represents a lower risk to the lender.
Your credit score can affect the cost of your debt, with lower interest rates and fees reserved for
borrowers with better scores. Lenders may subject those with lower credit scores to lower loan limits and
may restrict loans to only being spent on school charges.
FICO (Fair Isaac Corporation)
Your FICO score is a large part of your credit rating. Along with other factors such as debt-to-income
ratio and recent bankruptcies, lenders usually base their approvals and disapprovals on FICO.
FICO ranges from 300-850. A higher score is better and can result in a lower interest rate.
The median FICO score in the U.S. is 723.
FICO scores are calculated based on your rating in five categories: Payment history 35%, amounts
owed 30%, length of credit history 15%, new credit 10% and types of credit used 10%.
For more information, visit www.myfico.com. While you're there, you may find the site's education
pages and student loan forum informative.
Student Loans & Credit Scoring
Most lenders rely on your credit score to determine eligibility for alternative student loans and PLUS
loans. The PLUS Loan requires the borrower to not have an adverse credit history (being more than 90
days late on any debt or having Title IV debt within the past five years subjected to default determination,

  

Source: Andrews, Peter B. - Department of Mathematical Sciences, Carnegie Mellon University

 

Collections: Mathematics