Credit Scores Don’t Mean Everything
Posted on July 31, 2010
Filed Under Loans | Leave a Comment
The credit scores are the number one factor that most lenders rely to determine the credit-worthiness of their borrowers. The important things in life are mostly depend on the credits as a borrower whether it is for buying a car, getting a computer, or even loans. Your credit score is a three digit number which can determine whether you are capable of doing these things and even how much it will cost you
To determine if you can borrow an amount to a lender or a lending company, your credit score simply tells it. Using the credit score, lenders can predict with some accuracy how likely the borrower is to repay a loan and make payments on time. Its how electronics and department stores can offer instant credit.
Credit scores are far from obsolete, but there are lenders out there who believe that scores alone don’t do a good job of distinguishing credit-worthiness of those with average scores. Few years ago, Fair Issac predicted a borrower with a 680 FICO score had 0.7 percent chance of ever defaulting on the loan, and someone with a 700 score had a 0.3 percent chance. However, 1.5 percent of year-old mortgages belonging to borrowers with credit scores between 660 and 720 have had their homes foreclosed or are in the process of foreclosure.
Now, phone payment records and other alternative credit information such as rent payment histories are now being used more frequently to determine a borrower’s ability to repay a loan. Typically people with good credit scores are going to be the ones who pay their bills on time. For 2-3 months of not paying your phone bill, it could go to collection which will most certainly mess up your credit.
If you are the borrower, do you agree with this new system? There can be advantage and disadvantages on your part.
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- Credit reports and Scores Often Confuse Consumers
- Finding Bad Credit Mortgage Lenders
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