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How do credit scores work? 2 finance professors explain how lenders choose who gets loans and at what interest rate

Trends show credit scores are rising, with nearly half of all US consumers boasting ‘very good’ or ‘excellent’ numbers.

One way to get a good credit score is to pay bills on time every month. tolgart/iStock via Getty Images Plus

With the cost of borrowing money to buy a home or a car inching ever higher, understanding who gets access to credit, and at what interest rate, is more important for borrowers’ financial health than ever. Lenders base those decisions on the borrowers’ credit scores.

To learn more about credit scores, The Conversation consulted with two finance scholars. Brian Blank is an assistant professor of finance at Mississippi State University with expertise related to how firms allocate capital, as well as the role of credit in mortgage lending. His colleague at Mississippi State, Tom Miller Jr., is a finance professor who has written a book on consumer lending, in addition to providing his expertise to policymakers.

Credit scoring assesses the likelihood of default

Lenders stay in business when borrowers pay back loans.

Some borrowers consistently make prompt payments, while others are slow to repay, and still others default – meaning they do not pay back the money they borrowed. Lenders have a strong business incentive to separate loans that will be paid back from loans that might be paid back.

So how do lenders distinguish between good borrowers and risky ones? They rely on various proprietary credit scoring systems that use past borrower repayment history and other factors to predict the likelihood of future repayment. The three organizations that monitor credit scores in the U.S. are Transunion, Experian and Equifax.

Although 26 million of 258 million credit-eligible Americans lack a credit score, anyone who has ever opened a credit card or other credit account, like a loan, has one. Most people don’t have a credit score before turning 18, which is usually the age applicants can begin opening credit cards in their own name. However, some people still have no credit later in life if they don’t have any accounts for reporting agencies to assess.

Credit scores simply summarize how well individuals repay debt over time. Based on that repayment behavior, the credit scoring system assigns people a single number ranging from 300 to 850. A credit score ranging from 670 to 739 is generally considered to be good, a score in the range of 580 to 669 would be judged fair, and a score less than 579 is classified poor, or subprime.

The two most important factors in credit scores are how promptly past debts have been paid and the amount the individual owes on current debt. The score also takes into account the mix and length of credit, in addition to how new it is.

Credit scores can help lenders decide what interest rate to offer consumers. And they can affect banks’ decisions concerning access to mortgages, credit cards and auto loans.

A smiling woman looks at her computer while holding a credit card in her right hand.
A good credit score is reason to celebrate because it means you have access to cheaper borrowing. milan 2099/E+ via Getty Images

Recent improvements in consumer credit scores

Average credit scores in the United States have risen from 688 in 2005 to 716 as of August of 2021. They stayed steady at that level through 2022.

While credit card debt is at a record high, the average consumer was using just over a fourth of the revolving credit to which they had access as of September 2022.

As of 2021, nearly half of U.S. consumers had scores considered very good – meaning in the range of 740 to 799 – or excellent (800-850). Six in 10 Americans have a score above 700, consistent with the general trend of record-setting credit scores of the past few years. These trends might, in part, reflect new programs that are designed to note when individuals pay bills like rent and utilities on time, which can help boost scores.

During the first quarter of 2023, people taking out new mortgages had an average credit score of 765, which is one point lower than a year ago but still higher than the pre-pandemic average of 760.

Credit score evolution from the 1980s to the 2020s

Developed in the late 1950s, the first credit scores – FICO scores – were created to build a computerized, objective measure to help lenders make lending decisions. Before then, bankers relied on commercial credit reporting, the same system merchants used to evaluate the creditworthiness of potential customers based on relationships and subjective evaluation.

The FICO credit scoring system was enhanced over the 1960s and ‘70s, and lenders grew to trust computerized credit evaluation systems. Credit scores really began to exert an influence on American borrowers beginning in the 1980s as FICO become widely used.

A major goal of the credit score is to expand the pool of potential borrowers while minimizing the overall default rate of the pool. In this way, lenders can maximize the number of loans they make. Still, credit scores are imperfect predictors, likely because most credit models assume that consumers will continue to act in the same way in the future as they have in the past. In addition, some believe that various risk factors make credit scores imperfect. Credit modelers, however, continue to make progress by making continuous technological innovations. Even FinTech lenders, which strive to go beyond traditional credit models, heavily rely on credit scores to set their interest rates.

Recently, “Buy Now, Pay Later” accounts have been added to credit scoring, while medical debt has been removed.

Staying under 30% of your credit limit can help increase your credit score.

Credit scores might seem scary but can be useful

Borrowers with poor or limited credit have challenges building more positive credit histories and good credit scores. This challenge is particularly important because credit scores have become more widely used than ever because of the increasing availability of data and growing precision of credit models.

The availability of additional data results in more precise estimates of credit scoring, which can improve access to credit for consumers who repay bills consistently over time. These so-called “boost programs” factor in other payments that consumers routinely make on a monthly schedule. Think of the number of bills that you auto pay. Boost programs add points to your credit score for the bills that you pay consistently.

You can improve your credit score by making wise decisions

Two of the most important ways to improve credit scores are paying bills on time and ensuring that your credit report accurately reflects your payment history. Simply avoiding default is not enough. Timely payments are necessary. Someone who pays the bills every three months is “caught up” every quarter. But that consumer is 90 days delinquent four times a year. Being 90 days delinquent alarms creditors. So, someone who pays the bills every month will have a higher credit score at the end of the year.

Having more credit accounts can also positively affect your credit score because having these accounts shows that many lenders find you creditworthy. As a result, you might benefit from leaving credit accounts open if you make the wise decision not to access that credit. Warning! You must not use that extra credit access to spend more money and accumulate more debt. That decision is unwise.

Why? Because managing the ratio of debt to income is also critical to a good credit score. Debt-to-income ratios of 36% or less generally indicate individuals who have income to put toward savings, which is what all lenders are looking to see and one of the best ways to improve your credit.

Tom Miller Jr. is affiliated with Consumers' Research, a consumer advocacy organization founded in 1929.

D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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VanEck Ethereum Futures ETF Debuts In The U.S.

The United States cryptocurrency sector received a jolt on Monday, as VanEck today marks the inaugural debut of its Ethereum-based exchange-traded fund…



The United States cryptocurrency sector received a jolt on Monday, as VanEck today marks the inaugural debut of its Ethereum-based exchange-traded fund (ETF). The innovative investment instrument is designed to offer investors indirect exposure to the second-largest cryptocurrency by market capitalization. This exposure is achieved by investing in contracts of Ethereum (ETH) futures.

The product, listed on VanEck’s website, commenced trading on October 2nd on the Chicago Board Options Exchange (CBOE). This milestone establishes VanEck as one of the pioneering U.S. investment managers to introduce an ETF grounded in Ether futures—cash-settled ETH futures contracts traded on the Chicago Mercantile Exchange, a registered exchange supervised by the Commodity Futures Trading Commission (CFTC).

VanEck had disclosed its plans to launch an ETF based on Ether futures last week, indicating that it had received the eagerly awaited approval from the Securities and Exchange Commission (SEC).

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The competition for Ethereum futures-based ETFs gained momentum earlier this year when several managers, including Bitwise, ProShares, VanEck, and Grayscale, submitted proposals for such products. As of the latest count, approximately 15 entities have submitted their proposals to the SEC this year.

While U.S. regulators greenlit the launch of the first ETFs based on Bitcoin futures in 2021, they had not previously endorsed funds tied to futures of other cryptocurrencies. VanEck, at that time, emerged as the second manager in the nation to introduce a BTC futures ETF.

In addition to VanEck’s Ethereum futures performance-focused product, several others also made their debut on this Monday. ProShares, the same company that introduced the first U.S. Bitcoin futures ETF in 2021, introduced the ProShares Ether Strategy ETF, along with two others offering a blend of BTC and ETH exposure. Bitwise, another manager, announced the launch of two ETH futures ETFs: the Bitwise Ethereum Strategy ETF and the Bitwise Bitcoin and Ether Equal Weight Strategy ETF.

The crypto community is still awaiting the introduction of the first spot ETFs for both Bitcoin and ETH. In August, the SEC delayed it decision to issue spot crypto ETFs, although no official reason was cited in the decision.

The post VanEck Ethereum Futures ETF Debuts In The U.S. appeared first on The Dales Report.

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Study uncovers function of mysterious disordered regions of proteins implicated in cancer

Study uncovers function of mysterious disordered regions of proteins implicated in cancer Credit: Courtesy of Dana-Farber Cancer Institute Study uncovers…



Study uncovers function of mysterious disordered regions of proteins implicated in cancer

Credit: Courtesy of Dana-Farber Cancer Institute

Study uncovers function of mysterious disordered regions of proteins implicated in cancer

Study Title: A disordered region controls cBAF activity via condensation and partner recruitment

Publication: Cell, Monday, October 2, 2023 (

Dana-Farber Cancer Institute author: Cigall Kadoch, PhD


New research from Dana-Farber Cancer Institute researcher Cigall Kadoch, PhD, along with colleagues at Princeton University and the Washington University in St. Louis, reveals a key role for intrinsically disordered proteins known as IDRs that are implicated in a wide range of human diseases, from cancer to neurodegeneration. Kadoch’s team studies large protein complexes called mSWI/SNF or BAF complexes that control which genes turn on and off in cells. BAF complexes are the most frequently mutated cellular entities, second only to TP53, a tumor suppressor. Intrigued by the fact that over half of the complex mass contains IDRs, including the ARID1A/B subunits in which a high frequency of disease-causing lesions, or mutations, accumulate, the group set out to define their contributions. They found that these IDR regions lead to two important functions: first, condensation, the tight clustering of proteins in close distance to one another in the nucleus, and second, protein-protein interactions that are required for the proper positioning and activity of BAF complexes along DNA. Kadoch and colleagues show that the right interactions depend on highly specific “sequence grammars” within the protein’s IDR amino acid code, a concept broadly useful to the burgeoning area of work in this area to understand and ultimately therapeutically target biomolecular condensates and their constituents.


IDRs comprise a large percentage of the human proteome and are particularly important for nuclear proteins that govern our genomic architecture and gene expression. Their disruption is frequent in cancer. This study sheds light on the sequence-specific contributions of IDRs to the highly disease-relevant mSWI/SNF (BAF) chromatin remodeling complexes, which have become top therapeutic targets in oncology.


Howard Hughes Medical Institute, The Mark Foundation, National Institutes of Health, United States Air Force Office of Scientific Research, St. Jude Research Collaboratives, Fujifilm, and The Wellcome Trust.

Contact:  Cindy Cantrell;; 781-953-5000

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Book describes Sam Bankman-Fried with little attention span or respect for appointments

The former FTX CEO was reportedly invited by Vogue editor-in-chief Anna Wintour to be her special guest at the Met Gala, only to cancel at the last minute….



The former FTX CEO was reportedly invited by Vogue editor-in-chief Anna Wintour to be her special guest at the Met Gala, only to cancel at the last minute.

Michael Lewis, author of The Big Short, has painted an interesting picture of Sam Bankman-Fried (SBF) in his soon-to-be released book on the former FTX CEO.

In an excerpt of Going Infinite: The Rise and Fall of a New Tycoon published in the Washington Post on Oct. 1, Lewis described several interactions Bankman-Fried had with the media and influential figures prior to the downfall of FTX and his criminal charges in the United States. According to the author, he would frequently play video games in the background of online interviews — his League of Legends exploits are well reported — often giving little attention to people including Vogue editor-in-chief Anna Wintour.

“Sam didn’t want to seem rude,” said Lewis on SBF’s talk with Wintour. “It was just that he needed to be playing this other game at the same time as whatever game he had going in real life. His new social role as the world’s most interesting new child billionaire required him to do all kinds of dumb stuff. He needed something, other than what he was expected to be thinking about, to occupy his mind.”

Lewis added that Natalie Tien, who moved into the role of FTX’s head of public relations and SBF’s “personal scheduler”, said the former CEO cancelled many highly publicized appearances — often at the last minute — for seemingly no reason at all. The Wintour interview reportedly led to FTX's sponsorship and Bankman-Fried as a special guest at the Met Gala, which he ended up snubbing.

“Sam treated everything on his schedule as optional,” said the book. “The schedule was less a plan than a theory. When people asked Sam for his time, they assumed they’d posed a yes or no question [...] All he had done, when he said yes, was to assign some non-zero probability to the proposed use of his time. The dial would swing wildly as he calculated and recalculated the expected value of each commitment, right up until the moment he honored it or didn’t.”

Other in-person showings by Bankman-Fried included testifying before the U.S. House Financial Services Committee in December 2021 and meeting with Senator Mitch McConnell. The appearances marked some of the rare times SBF appeared in public wearing a suit as opposed to his usual T-shirt and shorts — though social media users pointed to footage of the then CEO's shoes slipped on without being tied at the hearing.

Related: Sam Bankman-Fried FTX trial — 5 things you need to know

It’s unclear what other information will become available once the book is released on Oct. 3, the same day jury selection begins for SBF’s criminal trial in New York. Amid the expected court proceedings, a slew of podcasts, news features, books, and other media have been released detailing aspects of Bankman-Fried’s life before and after the downfall of FTX. A 60 Minutes interview with Lewis revealed SBF had plans to pay off former U.S. President Donald Trump not to run for the office again based on the threat to elections and democracy as a whole.

On Oct. 4, Bankman-Fried will appear in a New York courtroom for the first day of his trial, scheduled to run through November. He will face 7 charges related to fraud at FTX and Alameda Research, for which he has pleaded not guilty.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

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