How credit scoring helps me
Credit scores give lenders a fast, objective measurement of your credit risk.
Before the use of scoring, the credit granting process could be slow, inconsistent
and unfairly biased.
Credit scores – especially FICO® scores, the most widely used credit bureau
scores – have made big improvements in the credit process. Because of credit
- People can get loans faster.
Scores can be delivered almost
instantaneously, helping lenders speed up loan approvals. Today many credit
decisions can be made within minutes. Even a mortgage application can be
approved in hours instead of weeks for borrowers who score above a lender's
“score cutoff”. Scoring also allows retail stores, Internet sites and other
lenders to make “instant credit” decisions.
- Credit decisions are fairer.
Using credit scoring, lenders can
focus only on the facts related to credit risk, rather than their personal
feelings. Factors like your gender, race, religion, nationality and marital
status are not considered by credit scoring.
- Credit “mistakes” count for less.
If you have had poor credit
performance in the past, credit scoring doesn't let that haunt you forever.
Past credit problems fade as time passes and as recent good payment patterns
show up on your credit report. Unlike so-called “knock out rules” that turn
down borrowers based solely on a past problem in their file, credit scoring
weighs all of the credit-related information, both good and bad, in your
- More credit is available.
Lenders who use credit scoring can
approve more loans, because credit scoring gives them more precise information
on which to base credit decisions. It allows lenders to identify individuals
who are likely to perform well in the future, even though their credit report
shows past problems. Even people whose scores are lower than a lender's cutoff
for “automatic approval” benefit from scoring. Many lenders offer a choice of
credit products geared to different risk levels. Most have their own separate
guidelines, so if you are turned down by one lender, another may approve your
loan. The use of credit scores gives lenders the confidence to offer credit to
more people, since they have a better understanding of the risk they are
- Credit rates are lower overall.
With more credit available, the cost
of credit for borrowers decreases. Automated credit processes, including
credit scoring, make the credit granting process more efficient and less
costly for lenders, who in turn have passed savings on to their customers. And
by controlling credit losses using scoring, lenders can make rates lower
overall. Mortgage rates are lower in the United States than in Europe, for
example, in part because of the information - including credit scores -
available to lenders here. Knowing and improving your score can also lead to
more favorable interest rates.
Check out an
example of the national averages of interest rates and see exactly how much
money you might be able to save.
The Score That Matters®
The FICO Score is the standard credit score in the US, used in more than 90% of lending decisions.