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Glossary of common credit scoring terms

Credit history, credit report, credit score, credit rating � these and other credit-scoring terms can lead to much confusion. Don't get mixed up. Here are some definitions of key words and phrases common to the credit scoring industry. Refer back to this glossary when you come across any jargon that leaves you puzzled.

1. Algorithm -- A complex mathematical model that in credit scoring, is used to compare data in millions of credit reports and predict a person's likelihood to repay debts.

2. Credit bureau -- A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information. The three major national credit bureaus are Equifax, Experian and TransUnion. They are also referred to as consumer reporting agencies and credit reporting agencies.

3. Credit header -- It's the top part of your credit report. It contains your identifying information, including your legal name(s), Social Security number, date of birth, current and former addresses, any employment history reported to the credit bureau, alerts on file and a consumer statement if you have one.

4. Credit history -- A record of a person's use of credit over time.

5. Credit rating -- A judgment of someone's ability to repay debts, based on current and projected income and history of payment of past debts. Sometimes expressed as a number called a credit score.

6. Credit risk -- The measure of a person's creditworthiness. People who are more likely to repay their debts on time are considered a better risk by lenders, and will be charged lower interest rates for borrowing money.

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7. Credit report -- A document containing financial information about a person, focusing on his or her history of paying obligations, such as mortgages, car payments, utility bills and credit cards. Also includes current balances on outstanding debts, the individual's amount of available credit, public records such as bankruptcies and inquiries about credit from various companies.

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