It's a way for lenders to quickly assess your creditworthiness so they can make a decision whether to lend you money, how much, and at what interest rate.

It's based on factors from your credit report, such as length of credit history; types of credit/loans (do you have a history with credit cards, car loans, mortgages, etc); credit utilization (how much of your credit cards' allowable balance limit is filled); any negative actions/comments (bankruptcies, account charge offs/negotiated settlements, car reposessions, home foreclosures, etc.); number of accounts you have; recent hard credit pulls (could indicate other loan in-process or recently set up beyond what's reported on credit report).

In the past, lenders reviewed the reports, but there were individual biases, subjective criteria used by different loan officers, and it took time to read through pages of documents. By using an algorithm to spit out a more standardize score between 300-850, lenders can usually make instant decisions to approve you for a credit card, car loan or such and with what kind of interest rate.