To determine a credit score, lenders use credit-scoring software, which analyzes data from a large pool of borrowers. Most lenders rely on the credit-scoring software developed by Fair, Isaac and Company, with data gathered by the three major credit reporting agencies:

Experian; Equifax, Inc.; and Trans Union Corporation. When a customer’s name and address are entered into a credit-scoring program, a complete credit history is obtained from one of the three credit-reporting agencies. Through a series of calculations, the history is analyzed and compared to the histories of other borrowers. The customer is then assigned a credit score, which is usually between 400 and 825. A score above 710 is normally considered a good credit risk, while a score under 620 out 1000 is considered a very high risk. Customers in the latter category have blemishes or irregularities in their credit histories and are often referred to as “subprime” borrowers.

So what is the benefit of knowing a credit score? The information is vital for lenders, because a customer with a score of 710 has a statistically determined default rate of only 1 in 21, while a customer with a score of 680 has a default rate of 1 in eleven. Although the calculations that determine credit scores are complex, obtaining your credit history is fairly simple. You have the legal right to see your credit report and can request it from any of the three major credit reporting agencies.

Lenders are not obligated to share your credit score with you when you apply for a loan, but there are signs that this may be changing. According to the November 13, 2000, issue of Newsweek, Fair, Isaac and Company recently took steps to better explain credit scores to lenders, so they can convey the information to customers. And, according to the article, Fair, Isaac plans to make credit scores available to customers soon through Experian and Equifax, while Trans Union plans to release scores on its own.