Why do lenders use credit scores?
Lenders use credit scores because they provide an objective means to evaluate loan applications. They can help lenders evaluate whether your business can make money with someone else’s money. “Not once when we go through our scoring system do we consider who the applicant is,” says Sipiorski. “It’s completely objective, based only on the numbers.” Personalities don’t enter into the equation. But your past financial perfomance is considered. Q. Why are credit scores being used more often? Credit score use has increased significantly for several reasons. First, basic ag lending has changed considerably since the early 1980s when many loans were made solely on the information on a dairy’s balance sheet, explains Sipiorski. Secondly, credit score use has increased because of the explosion in available credit, whether through low- or no-interest credit cards, equipment dealers and even feed suppliers. And third, credit scores can be a useful tool as lenders try to be the fastest and best at
Lenders use credit scores (FICO) to make fast and fair decisions on loan requests. Credit scores are empirically derived and statistically sound predictors of possible payment or full default on a loan. They are also non-discriminatory because they do not take into account race, national origin, religion, gender or marital status.
The use of credit scores has dramatically increased the speed at which many credit decisions can be made. Especially for consumers with relatively good credit, approvals for loans can be given in a fraction of the time previously required, without any manual review of the information. Credit scores also provide an objective estimate of how likely you are to repay on time and according to terms.
Credit scores give lenders a fast objective measurement of an applicant’s credit risk. Before the use of scoring, the credit granting process was usually slowed, inconsistent and often unfairly biased. Lenders can use scores to speed up loan approvals to borrowers who score above a certain threshold. Borrowers with scores just at the threshold or below may be asked to submit additional information or may qualify for different terms. Many lenders offer a choice of credit products geared to different risk levels. Most have their own separate guidelines, so if one lender turns you down, another may approve your loan. WHAT IS A GOOD SCORE TO GET? A “good” score is a number that matches the level of risk a lender is willing to accept for a particular loan or credit card. For example, a score of 750 may qualify you for a gold credit card, whereas a score of 675 may indicate you’re a better match for a standard card. Scoring systems have varying numeric scales. A score of 875 could indicate h
