A credit score is just a formalized version of the process that everyone already does inside their heads.
Think of your friends. There’s one friend that you’d have no problem lending $100 to; you know they are guaranteed to pay you back ASAP. There’s another friend who you’re pretty sure will pay you back, but it could take a while. And there’s that friend that you would be reluctant to lend so much a a pen to, since it’s doubtful that you’d ever see it again. Assign a number to each person’s trustworthiness (say 2 for the first friend, and 0 to the last) and that right there is a simple credit score system.
A credit score is just a formalized version of the process that everyone already does inside their heads.
Think of your friends. There’s one friend that you’d have no problem lending $100 to; you know they are guaranteed to pay you back ASAP. There’s another friend who you’re pretty sure will pay you back, but it could take a while. And there’s that friend that you would be reluctant to lend so much a a pen to, since it’s doubtful that you’d ever see it again. Assign a number to each person’s trustworthiness (say 2 for the first friend, and 0 to the last) and that right there is a simple credit score system.