How FICO Scores Help You
FICO 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 scores- have made big improvements in the credit process. Because of FICO scores:
- People can get loans faster. FICO scores can
be delivered almost instantaneously, helping len'ders speed up
loan approvals. This means that when you apply for credit, you'll
get an answer more quickly. Today many credit decisions can be
made within minutes-or online, within secorrds;Even a mortgage
application can be approved in hours instead of weeks for borrowers
who score above a lender's "score cutoff:' FICO scores also
allow retail stores, internet sites and other lenders to make
"instant credit" decisions.
- Credit decisions are fairer. Using FICO scores,
lenders can focus only on the facts related to credit risk, rather
than their personal opinions or biases. Factors like your gender,
race, religion, nationality and marital status are not considered
by FICO scores. So when a lender makes a credit decision based
at least partly on your FICO score, you can be sure that the lender's
evaluation of your credit history is fair and objective.
- Older credit problems count for less. If you
have had poor credit performance in the past, FICO scores don't
let that haunt you forever. The impact of past credit problems
on your FICO score fades as time passes and as recent good payment
patterns show up on your credit report. And FICO scores weigh
any credit problems against the positive information that says
you're managing your credit well.
- More credit is available. Lenders who use
FICO scores can make more credit available to you or offer better
terms because your FICO score 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 if your FICO
score is lower than a lender's cutoff for "automatic approval;'
you may still benefit from your lender's use of FICO sCOres. 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 FICO scores gives lenders the confidence to offer credit
to more people, because they have a better understanding of the
risk they are taking on. And this gives you more options when
you apply for credit.
- Credit rates are lower overall. With more credit available, you may pay less. 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 by using FICO scores, 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 FICO scores-available to lenders here.
Frequently Asked Questions
Does my FICO score alone determine whether I get credit?
No. Most lenders use a number of facts to make credit deci sions, including your FICO score. Lenders look at information such as theamount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your FICO score is low, or decline your request for credit although your FICO score is high.
How fast does my FICO score change?
Your FICO score can change whenever your credit report changes. But your score probably won't change a lot from one month to the next. In a given three-month time period, only about one in four people has a 20-point change in their FICO score.
While a bankruptcy or late payments can lower your FICO score fast, improving your FICO score takes time. That's why it's a good idea to check your FICO score 6-12 months before applying for a big loan, so you have time to take action if needed. If you are actively working to improve your FICO score, you'd want to check it quarterly or even monthly to review changes.