Tuesday, November 9, 2010
Your Credit Score and How It Affects the Loan Process
A credit score is a numerical figure that represents a person's creditworthiness. This numerical figure is computed via a statistical analysis and takes into account a person's past and present debts, payment history, public records (bankruptcy), and collection accounts.
In the United States, FICO Credit score takes into account the Experian, TransUnion, and Equifax. Your FICO score is the median number between the scores of those 3 credit scores, and the range is between 300-850, with the higher number being a better score. The median FICO score of Americans is 723, and anything under 670 is considered a below average credit score.
Since your credit score determines your creditworthiness, it affects your ability to obtain a loan. Other factors such as income, assets, and debt obligations also factor into your ability to qualify. Ideally, you put yourself in the best situation (lowest rates, best terms) for a loan by having a high credit score, significant assets, and little to no debt obligations as you would pose the least amount of risk of defaulting. The lower the risk of defaulting, the cheaper the loan will be for you.