How a Higher FICO Score Helps You Financially
Credit scores-especially FICO scores, the most widely used credit bureau scores-have made big improvements in the credit process. Because of credit scores:
- People can get loans faster. Scores can be delivered almost instantaneously, helping lenders speed up loan approvals. This means that when you apply for credit, you'll get an answer more quickly. Today many credit decisions can be made within minutes-or online, even within seconds. Even a mortgage application or a business line of credit can be approved in hours instead of weeks for borrowers who score above a lender’s "score cutoff." Scoring also allows retail stores, Internet sites and other lenders to make "instant credit" decisions.
- Credit decisions are fairer. Using credit scoring, lenders can focus only on the facts related to credit risk, rather than their personal opinions or biases. Factors like your gender, race, religion, nationality and marital status are not considered by credit scoring. So when a lender makes a credit decision based at least partly on your FICO score, you can be sure that the lender’s evaluation of your credit history is fair and objective.
- Older credit problems count for less. If you have had poor credit performance in the past, credit scoring doesn't let that haunt you forever. The impact of past credit problems on your FICO score diminishes as time passes and as recent good payment patterns show up positively on your credit report. And credit scores weigh any credit problems against the positive information that says you’re managing your credit well.
- More credit is available. Lenders who use credit scoring can make more credit available to you or offer you better terms because scoring gives them more precise information on which to base credit decisions. It allows lenders to identify individuals who are likely to perform well in the future, even though their credit report shows past problems. Even if your score is lower than a lender’s cutoff for "automatic approval," you can benefit from scoring. Many lenders offer a choice of credit products geared to different risk levels. Most have their own separate guidelines, so if you are turned down by one lender, another may approve your loan. The use of credit scores gives lenders the confidence to offer credit to more people, because they have a better understanding of the risk they are taking on. And this gives you more options when you apply for credit.
- Credit rates are lower overall. With more credit available, you may pay less. Automated credit processes, including credit scoring, make the credit granting process more efficient and less costly for lenders, who in turn have passed savings on to their customers. And by controlling credit losses using scoring, lenders can make rates lower overall. Mortgage rates are lower in the United States than in Europe, for example, in part because of the information–including credit scores – available to lenders here.
For a $216,000 30-year, fixed rate mortgage:
| FICO score | Interest rate | Monthly payment |
| (This is an example; rates do change often) | ||
| 760 - 850 | 6.37% | $1,346 |
| 700 - 759 | 6.59% | $1,378 |
| 680 - 699 | 6.76% | $1,403 |
| 660 - 679 | 6.98% | $1,434 |
| 640 - 659 | 7.41% | $1,497 |
| 620 - 639 | 7.95% | $1,578 |
