Loans Depend Increasingly on Credit Scores

For most lenders, credit scoring has replaced meeting with an applicant to determine credit worthiness.

For the borrower, this means the FICO score, named for Fair Isaac & Co., determines whether a loan is approved.

Though the practice has its merits, such as reducing the possibility of discrimination and more accurately assessing a consumer’s credit worthiness, it is not without flaws.

Though a reporting agency must remove any entry the applicant can prove is incorrect, it’s often a long, time-intensive process. Scores also may not account for one-time occurrences, such as a sudden job loss or a death in the family that left the applicant temporarily strapped for funds.

Credit scores are reported by each of the three major credit bureaus, Experian (formerly TRW), Equifax and Trans-Union. The scores can range from 350 to 900, and each credit bureau scores slightly differently. A score of 700 and above is generally looked upon favorably by lenders.

Some factors that affect the FICO score: late payments, short credit history, too many recent inquiries, balances that are at the limit, tax liens, judgments and bankruptcies.

Some Web sites can help applicants assess credit scores: https://www.creditscoring.com, https://www.knowyourscore.com, https://www.fairisaac.com and https://www.icreditscore.com.