In detail
A credit scoring algorithm is a mathematical formula or statistical model that evaluates information in a consumer credit report to generate a numerical credit score. The algorithm assigns weights to various data points, such as payment history, the amounts owed on accounts, the length of credit history, the mix of credit types, and recently opened accounts. Each scoring model, including those developed by FICO and VantageScore, uses its own distinct algorithm. These algorithms are proprietary, meaning the exact calculations are not publicly disclosed, though the general categories of data they consider are described in educational materials and regulatory filings. When a lender requests a credit score, a credit reporting company runs the consumer's credit report data through a scoring algorithm. The resulting score is a snapshot at a point in time and can differ depending on which algorithm is used. The Fair Credit Reporting Act governs how credit reporting companies must handle the data that feeds into these algorithms, including requirements for accuracy and a process for consumers to dispute errors. Consumers may obtain their credit reports and, in some cases, their scores, to review the information that algorithms use.