Credit scoring gets an `A'.

Use credit scoring to your advantage

Credit scoring can be a foe for credit seekers whose credit reports are a mess. But, it's great for small businesses that want to make fast, smart, credit decisions and weed out delinquent payers.

What exactly is a credit score? It's a three-digit number that predicts the likelihood of an applicant paying on time.

Who prepares credit scores? Big credit services companies like Fair, Isaac and Co. of San Rafael, California, the innovator of credit scoring in 1956; Dun & Bradstreet (D&B) of Murray Hill, New Jersey; and the major credit-reporting agencies.

These companies assign numerical values to "events" on an applicant's credit report--slow payments, maxed out credit cards, or bankruptcies, for example--then calculate them with other factors to arrive at a score.

Approximately 30% of a Fair, Isaac credit score is based on amounts owed.

Owing a great deal of money to many different creditors raises the probability of late payments or none at all, thus lowering a person's credit score.

Lathea Morris, co-founder of the Credit Alternative in Montclair, New Jersey, urges everyone to "check out their credit report. Analyze it, get mistakes corrected, close unused accounts, stop maxing out your credit cards, and start paying your bills on time" she suggests. "The better your report, the better your credit score."

Although most people aren't aware that credit scoring exists, many get turned down [for credit] because of it, or receive less desirable terms.

According to D&B, there's a 61% chance that applicants scoring in the 101-360 range will pay seriously late, compared to a 3% likelihood for those scoring in the 535-660 range. Offering incentives such as discounts to customers that have good ratings will ensure sufficient cash to run businesses efficiently, and denying credit or offering a smaller amount will stimulate those whose ratings need improvement.

More than 10 billion Fair, Isaac scores have been sold in America, an indication that businesses are using credit scoring in a big way. "It beats the old way of checking out potential customers and clients," says Latimer Asch, a senior vice president at Fair, Isaac. "Credit grantors typically relied on unscored credit reports, intuition, and calling [applicants'] references."