 TITLE: What Is Credit? CONTENT: How Credit Works\n----------------\nIn centuries past, creditors might have gauged your creditworthiness by reputation alone. Obviously, this method was subjective and prone to error, manipulation and bias. These days, creditors prefer a more objective approach. In the U.S., typically they look to your credit history—your record of borrowing and repaying funds—as a first step in determining whether to issue you credit.\nYour credit history is summarized in files known as credit reports, compiled by three independent credit bureaus—Experian, TransUnion and Equifax. Banks, credit unions, credit card issuers and other creditors voluntarily report your borrowing and repayment information to the credit bureaus.\nInformation in your credit report includes:\n*   The number of credit card accounts you have, their borrowing limits and current outstanding balances\n*   The amounts of any loans you've taken out and how much of them you've paid back\n*   Whether your monthly payments for your accounts were made on time, late or missed altogether\n*   More severe financial setbacks such as mortgage foreclosures, car repossessions and bankruptcies\nTo help narrow their lending decisions, creditors often use a three-digit number known as a credit score as the first step in deciding whether or not to issue credit. Your credit score distills the information on your credit reports to something that's easy to interpret, and does so in a fair way that minimizes the possibility of bias.\nSophisticated systems known as credit scoring models calculate your credit score by performing complex statistical analysis on the contents of your credit file. Different models, such as the FICO® Score☉ and VantageScore®, calculate scores differently, but all assign higher scores to individuals whose credit histories make them statistically more creditworthy than those with lower scores. END