Credit Scoring Basics

What is a credit score? Is there a good or bad side to credit scoring? How is a score calculated? What is "FICO"? What are the benefits of credit scoring? What are the down sides?

In a nut shell, a high credit score helps your request for credit to be approved. It can also mean lower interest on loans or even insurance rates. Low credit scores can cause higher rates and loan denials... and even that promotion or new job you were seeking.

How Is A Credit Score Calculated?

The credit granting agency utilizes a computer software designed by folks such as Fair, Isaac. An acceptable point value is established based upon selected criteria which offers the lender insight as to the risk involved with getting the loan.

The loan applicant gives information to the lender which is submitted to a credit bureau. Per Fair, Isaac, the credit bureau then returns a: "credit bureau risk score, commonly known as a FICO score, [which] is a snapshot of your credit risk picture at a particular point in time." Lenders can then determine, 'If I give this person a loan or credit card, will I get paid back on time?'"

Is Credit Scoring Objectivity Questionable?

Fair, Isaac concludes: "Computers don't make lending decisions, lenders do. Computers analyze credit information to produce a score, but individual lenders decide what scores are acceptable for different loans or credit cards. "

The problem is that subjectivity has been completely removed in the models. Models should make recommendations not decisions and that is usually not the case today... it is more "expeditious" and "efficient" to rely on the model. The model, then, has become the decision instead of the guide.

What's the Benefit to Credit Scoring?

Consider, what would happen without a model system? In many cases the result would be non standard chaos based upon subjective guesswork and prejudicial criteria. If I am a bald lender and very sensitive to long hair, isn't it possible without a measuring standard to be prejudicial in my decision to loan out my money to a long haired rock musician?

Now add on something a little closer to reality like race, color, creed, etc. None of these should be permitted into the decision making process. But we all know of incidents with objective measures fully in place where it has still happened. How bad would it be without a system, any system, fully in place?

On the other hand, what would happen if very few applications were turned down? There is no standard so how am I, the lender, suppose to know who will and will not pay me back. I can't predict the future. The very reputable and honest person in front of me may well have extraordinary events occur tomorrow. Without some measure of prediction, I could loose more loans then are paid back. That's a tough way to stay in business and not to very welcome at the next meeting of the stockholders.

What Is a "FICO Score" and How Is It Calculated

Information about you is collected from your credit application and other sources. Data includes your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, age of your accounts, and other information. Using the Fair, Isaac statistical program or model, creditors compare this information to the credit performance of consumers with similar profiles and award points for each factor that helps predict who is most likely to repay a debt. Thus comes the term "FICO Score" which means, a credit score based on the Fair,Isaac Company (FICO) model.

Credit information is weighted based upon its type and history... the more current the good or bad information, the more weighty the affect. For example a very old 90 day late may be less weighted than a very recent 30 day late. The type of data is also weighted:

1. Past Payment Performance (35% or at least heaviest weight)
2. Credit Utilization (30% or next heaviest)
3. Credit History (15% or third weight)
4. Types of Credit In Use (10% or least weighted)
5. Inquiries (10% or least weighted).

You will find greater detail of the above data in the follow up article, Improving Your Credit Score.

What's a Good Score?

FICO scores can impact the interest you pay on a loan, how much you pay for insurance and a myriad of other decisions. It should also be noted that general US population FICO Scores range

780 to 850 - 20%
740 to 780 - 20%
690 to 740 - 20%
620 to 690 - 20%
Below 620 - 20%

How Can I Get My Score
Though credit REPORTS can be obtained for free as shown in the article referenced below, a credit SCORE will have an associated cost but can be obtained from the same source from which you get a credit report. You wil find all of this information in the article Free Credit Report.

Mike has been an Internet Guide/Writer in the field of Credit/Debt Management for over 10 years. His site was awarded Best Of Net by Forbes Publication from 2000 to 2005 with site visitation doubling to over 500,000 average views per month in the last year.

He has also offered debt elimination seminars to businesses and community colleges for the last 9 years. He has been interviewed on the radio a number of times and referenced in numerous publications. http://learncreditmanagement.com/

Bad Credit Mortgage Broker

Getting a cheap bad credit loan can be really tough. This is where a bad credit mortgage broker can be of immense help. Have the variety of loans available in the market confused you? Are you sick and tired of reading the fine print on loan agreements? Does the task of looking for the cheapest rates stress you out? If you answered 'Yes' to any of the above questions then the easiest way to solve your problems is to hire a bad credit mortgage broker.

Job Profile Of A Bad Credit Mortgage Broker

A bad credit mortgage broker may be a self employed professional or a person who works for a mortgage broking company. He or she is a trained professional with in depth knowledge about finance, loans and mortgages. A bad credit mortgage broker focuses on looking for the most suitable and economical mortgage according to their customers needs. They work for people with low credit scores and help in finding the best bad credit loans and re mortgages

Finding A Bad Credit Mortgage Broker

It is pretty easy to find a bad credit mortgage broker. Just visit the website of the mortgage broking company and fill in an online application form. This form requires details like -

-Your full name
-Contact details including email address and telephone number
-Information about the reason you need a bad credit loan.

After checking your details, a bad credit mortgage broker will contact you to learn more about your problem and provide a solution. They will recommend a series of options which you can choose from.

If you were worried about bad credit mortgage broker firms trying to promote and sell products of partner lenders, then put your doubts to rest. Most give you unbiased recommendations as they wish to build trust and chances for a long standing customer relationship.

Your low FICO score (US residents) makes you a high risk borrower resulting in applications for loans being routinely rejected. However, a bad credit mortgage broker should get you approved for a loan even if you have been denied loans in the past because of your bad credit rating.

A few groups of non salaried people like the self employed, contractors and freelancers are also refused loans. The main reason is their inability to provide proof of having a regular income which is needed by lenders.

So, whether you haven't any proof of income or have a low credit score, a bad credit mortgage broker is your best bet for getting funds at bargain rates.

Thomas Lonsdale works for clickoncredit.co.uk a secured loans broker aimed at the uk market offering financial news stories