Credit Scoring

What is credit scoring?

What is credit scoring and FICO and why is it important?
(FAIR, ISAAC AND CO.)

In an interview with financial lending experts, we asked if there were classifications of what is a prime or middle market borrower. "Among lenders, there's no standard method for classifying a borrower as prime or middle market," says Stephens and Co.'s Telzrow. "When it comes to job status and credit history, middle market means different things to different lenders." That is why many lenders rely on an objective measurement - credit scoring - to determine which borrowers will get capital.

The best known and most widely used scorecard is Fair, Isaac and Company's FICO model, which assigns potential borrowers a credit risk score from 350 (poor credit) to 850 (excellent credit), based on more than 30 pieces of information from their credit history.

The application of FICO credit scoring and objective cutoffs has enabled lenders handling thousands of loan applications to bring order and science to the middle market lending process. FICO's speed and low cost have made it such a popular evaluation tools that credit scoring is even used by non-lending businesses such as insurance companies. With the help of FICO credit scoring, lenders, auto insurance, home mortgages, and credit card companies can assess the creditworthiness of applicants who will be making payments over time.

Don't know your credit score? Get an online credit report.

For example, you can get your credit report online from Equifax or TransUnion. Be sure to do that first, most people don't know what's on their credit report, or have never seen it, yet the car dealers and banks have! Looking for a bad credit auto loan? Check out myAutoloan.com for specialized lenders who can help obtain the auto financing that you need. If your credit score is 680 and you're rejected, don't submit apps all over that keep getting you rejected. Submit one FREE application to a bad credit auto loan direct lender site like myAutoloan.com, that specializes in finding bad credit car loans for people with low credit scores. Then send in extra principle payments to buy down your APR and pay off your car loan faster.

How long does it take to get your Credit Score?

Your Credit Score is calculated within seconds, as long as we are able to locate your credit report. However, if we are unable to automatically authenticate your identity, or your report cannot be located, there may be a delay.

Get your Credit Report

To obtain a copy of your credit report, visit the research page at myautoloan.com/research or contact one of the three major credit bureaus:

Equifax Credit Information Services
P.O. Box 740241
Atlanta, GA 30374-0241
Phone: (800) 685-1111
Web Site: www.equifax.com

Experian
P.O. Box 2104
Allen, TX 75013
Phone: (888) 397-3742
Web Site: www.experian.com

TransUnion Corporation
P.O. Box 1000
Chester, PA 19022
Phone: (800) 916-8800
Web Site www.Transunion.com

Credit Scoring

When looking for new auto loans, it's important to keep a number of things in mind. Lenders love stability, which means the longer you have lived at a residence or have worked at the same employer, the better you will look in the eyes of a lender. A good rule of thumb is to have lived and worked at the same place for at least six months before applying for an auto loan.

Your credit report and score is the most important factor determining if you'll get approved for a car loan, and what your APR will be. If your credit report is not favorable, you'll pay extremely high interest rate, up to 20%. Maintaining your credit score should be an ongoing process, not a task you rush into when buying a new or used car.

Each time a prospective creditor looks at your credit report, an inquiry notation is added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment purposes are not part of credit scoring. It is best to avoid over-applying for credit and running up excessive inquiries, for the simple reason that lenders of creditors may think you're trying to get credit due to financial difficulty, or taking on more debt than you can repay. If you own several credit cards, it can hurt you instead of help you when applying for new auto loans. When a lender sees you have several open lines of credit, they may be hesitant to give a loan that will only add to your open credit. A simple solution is to close and cancel most of your credit cards, and only leave two or three open.

What do I need to know about my Credit Score?

A credit score is a number that reflects your credit risk level, typically with a higher number indicating lower risk. It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included with the report viewed by the creditors. Your credit score is a fluid number, and it changes as the elements in your credit report change. For example, payment updates or a new account could cause your score to fluctuate. There are many different credit scores used in the financial service industry. Your score may be different from lender to lender (or from car loan to mortgage loan), depending on the type of credit scoring model that was used.

Why are credit scores used?

Before credit scores, lenders physically looked over each applicant's credit report to determine whether to grant credit. A lender might deny credit based on a subjective judgment that a consumer already held too much debt, or had too many recent late payments. Not only was this time consuming, but human judgment was prone to mistakes and bias. Lenders used personal opinion to make a decision about an applicant that may have had little bearing on the applicant's ability to repay debt. Credit scores help lenders assess risk more fairly because they are consistent and objective. Consumers also benefit from this method. No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status.

Understanding Credit reports, Scoring and FICO

"Among lenders, there's no standard method for classifying a borrower as prime or middle market," says Stephens and Co.'s Telzrow. "When it comes to job status and credit history, middle market means different things to different lenders." That is why many lenders rely on an objective measurement - credit scoring - to determine which borrowers will get capital.

The best known and most widely used scorecard is Fair, Isaac and Company's FICO model, which assigns potential borrowers a credit risk score from 350 (poor credit) to 850 (excellent credit), based on more than 30 pieces of information from their credit history. The application of FICO scores and objective cutoffs has enabled lenders handling thousands of loan applications to bring order and science to the middle market lending process. FICO's speed and low cost have made it such a popular evaluation tools that it is even used by non-lending businesses such as insurance companies. With the help of FICO, insurance companies can assess the creditworthiness of applicants who will be making payments over time.

Who uses credit scores?

Banks, credit card companies, auto dealers, retail stores and most other lenders that issue credit or loans use credit scores to quickly summarize a consumer's credit history, saving the need to manually review an applicant's credit report and provide a better, faster risk decision. Although many additional factors are used in determining risk, such as an applicant's income vs. the size of the loan, a credit score is a leading indicator of one's basic creditworthiness.

What information impacts my credit score?

The information that impacts a credit score varies depending on the score being used. Generally, credit scores are affected by elements in your credit report, such as:

• Number and severity of late payments
• Type, number and age of accounts
• Total debt
• Recent inquiries

Credit bureau-based scores cannot use demographics prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance, or exercise of rights under the Consumer Credit Protection Act. Scores used by individual lenders may use such elements as income, occupation and type of residence in determining their own custom credit score.

The credit reporting agencies maintain credit files on individual U.S. residents only. They do not maintain joint files for spouses. Only accounts that are in both your names or those for which you are an authorized user will show up on your report. Therefore, your credit report is separate and different from your spouse's.

How do I go about getting information that is incorrect updated and corrected?

To request an investigation into information you don't agree with on your credit report, you should write directly to the credit reporting bureau that supplied the information. A credit bureau has 30 days to investigate disputes regarding possible inaccuracies on credit reports. The credit bureau must then give you the results in writing.