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Creditworthiness

Summarily one’s credit worthiness is determined by the value of their credit score. A brainchild of the Fair Isaac Co. this value compresses all the information of your credit report in a single index of your creditworthiness. The system uses a formula to calculate a number which lenders can use in checking your eligibility for a loan. As the lender reviews your credit file, they are able to make a fast projection of the extent of risk being taken aboard. Lenders can therefore make a light job of the underwriting process helping the consumer access the opportunity of credit. On a scale of between 300 and 900, the higher score is clearly the better value. Most borrowers however have a score that falls in the range of 600 and 700.

A consumer has their score put through several acid tests in this order of significance: past delinquency, use of credit, age of credit file, number of requests for credit, and mix of credit. These are the most important characteristics for the borrower to check out for. A mix of different credit lines indicates that you are making regular, fixed payments to certain funds – an indication that you have funds accessible to you. Frequent request for credit card loans makes you a riskier candidate for other credit types. Since you are ill disposed to rely on short term debt instruments on a constant basis, it is unlikely that you will not defect on your loan. Holding a loan for a long time also places you in a good spot when applying for other credit since you pose no apparent risk. Use of credit could place you as a candidate for rejection. If you are nearly maxing out on your credit card for example, your score is likely to be low grading you negatively for a loan.

An improvement on your creditworthiness can be made once you choose to check on your credit score every so frequently. This way you can always gauge the state of your balance sheet and correcting it accordingly. Loans being the large transactions, you do not want to be shut out just when you need them so badly. The worst choice is making a request for your score when dealing with the lender. A change 3 to 6 months before dealing with a lender will however work well for you. Scores can be accessed fast presently with mortgage brokers falling over each other’s neck for the competition. Even without the need for buying a home, you can still get the credit score as the broker will tell you; for prequalification of a mortgage.

The 3 major credit report agencies are now bound by federal law to give you a free credit report once every 12 months. The recent addition to federal statutes lets you access the free report at a central source consisting of a website, a toll-free telephone number and a postal address. One can make the request for their score personally. The service is not automated as yet and offers an alternative to the charged reports offered by credit report agencies.

Tags: check, credit, law, loan, mortgage, risk

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