Good Credit Score Will Lead to Lower Interest on Home Mortgages

A credit score is a computer generated indicator designed to give lenders a fast, accurate prediction of the risk of giving a loan, and to indicate credit worthiness. The scores vary from three hundred (very bad credit) to about 900 (very good credit).

There are three credit reporting agencies (Transunion, Experian and Equifax) who calculate credit scores based on such factors as past late payments, amount of credit asked for and received, bankruptcies, collection accounts, judgments, and, of course, perfectly paid installment payments.

Banks who give out mortgages set minimum credit score requirements such as 640 or higher to give approvals. Other lenders and businesses such as E-Z Loan Auto Sales use "common sense underwriting” to decide if applicants are credit worthy. “Common sense underwriting is a more human approach to lending because it determines loan acceptance based on a total picture of an applicant’s credit, rather than an arbitrary number threshold.

That means a person, for example, could get the loan with less than a 640 score, if the lender feels the number is unfair based on a subjective set of criteria. This is how E-Z Loan Auto Sales can approve a loan on a car where a customer might be denied by the bank based solely on their credit score.

The lesson to be learned is to get and keep your score up so you can provide your family with a big ticket item such as a house or car in the future at the lowest interest rate possible, instead of having to rent a house and/or pay cash for someone’s unwanted junk car.