A credit history is a record of a borrower’s responsible repayment of debts. A credit report is a record of the borrower’s credit history from a number of sources, including banks, credit card companies, collection agencies, and governments. A borrower’s credit score is the result of a mathematical algorithm applied to a credit report and other sources of information to predict future delinquency.
In many countries, when a customer submits an application for credit from a bank, credit card company, or a store, their information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files. The gathered records are then used by lenders to determine an individual’s credit worthiness; that is, determining an individual’s ability and track record of repaying a debt. The willingness to repay a debt is indicated by how timely past payments have been made to other lenders. Lenders like to see consumer debt obligations paid regularly and on time, and therefore focus particularly on missed payments and may not, for example, consider an overpayment as an offset for a missed payment.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ the same techniques. Digital finance companies such as online lenders also use alternative data sources to calculate the creditworthiness of borrowers.