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Based on how well you score, a creditor may decide to extend credit to you or turn you down.

The following questions and answers may help you understand who gets credit, and why.

To illustrate how credit scoring works, consider the following example that uses only three factors to determine whether someone is creditworthy.

Most lenders determine 35% of the score from payment histories on your credit accounts, with recent history weighing more heavily than the distant past.

30% is based on the amount of debt you have outstanding with all creditors. A longer history is better if you've always made timely payments.

As some creditors became larger and as the number of their consumer credit applications grew, these creditors needed to establish more systematic and efficient methods for evaluating which consumers were good credit risks. Although smaller creditors still may rely on informal credit evaluations, many large companies now use formal credit scoring systems.

Although no system is perfect, credit scoring systems can be at least as accurate as informal methods for granting credit — and often are more so — because they treat all applicants objectively.

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