In the 1980s, Fair, Isaac and Company devised a mathematical model to predict the credit risk of consumers based on the data collected from an individual's credit report. Today, the Fair, Isaac (or FICO®) system is the scoring model most widely used by lenders. The score ranges from 300 to 850, with a higher score indicating a lower credit risk.

Potential lenders will usually review your credit report and use various methods to determine your credit risk. In other words, they will determine your ability and likelihood to repay debt.