Credit Scoring Part I

Part I: Having Good Credit Results in Lower Rates on Your Mortgage and Auto Loan

In the 1960s, Fair Isaac Corporation began working on a platform which lenders could use to determine the likelihood of receiving repayment on loans. Pre-1960's it was basically a handshake and a promise to repay the loan. Fair Isaac came up with an ingenious idea to take the human element out of the equation. In order to do this they had to come up with a reliable system that could determine whether or not potential borrowers were truly credit worthy. What was the name of this new system? You've probably heard of it before. It's called FICO.The FICO system is now the standard by which most all lenders adhere to.

Credit scoring is the single biggest determining factor in a borrower's ability to buy a home, refinance a home or to obtain an equity line of credit. As of recent, it has become so important that it usually makes the difference between an approved loan with a low interest rate or a denied loan. Average credit scores are now resulting in loans with higher interest rates and higher mortgage insurance premiums. For this reason, it is vitally important that borrowers understand how credit scoring works, and to know what their credit score is before shopping for a mortgage or an auto loan.

How likely the consumer is to pay off their debt without being more than 90 days late on a payment at any point in the future? This is what the credit scoring system is trying to ascertain. Credit scores have a range between 350 and 850. The higher the borrower's score, the less likely they are to default on their loan. Credit scores of over 800 are very rare and you should be very proud to have achieved this if you are one of the lucky ones . These borrower's are the ones who will have the most advantage when it comes to interest rates and favorable loan terms. If you have a credit score between 500-600, you are going to find it very tough if not impossible to get a loan with today's strict underwriting requirements. Luckily there are several different approaches a borrower can take in order to raise their scores back into the 600-700.

For more information on how you can obtain a copy of your credit report and improve your credit scores please visit us at: http://creditscientist.com/index.php