Wednesday, April 4, 2012

How is a FICO Score used in credit?

Hi, I’m Greg Meyer, The Meriwest Credit Union Guy. In these blogs I will be talking about the changes in how we manage our finances in the 21st Century. In future posts we will get into managing our checking with online banking, ideas for preventing identity theft, and managing credit for people with long experience and for those who are new to it. We hope you find this useful!

In our first blog posting, I want to address how FICO is used in the world of credit unions. First, let’s define what a FICO Score is:

FICO-A mathematical model created by the Fair Isaac Company (FICO) that tracks a person’s credit use and gives a value to how an individual manages their credit. Major components of the FICO Score are Payment History, Balances used vs. Balances Available, Credit History, Types of Credit being used, and Credit Inquiries.

Your FICO Score holds the key to loan approval. Maintaining a strong FICO Score will help you access excellent rates on loans for cars and homes. In the long run, a good FICO score can save you thousands of dollars in interest payments. 

Before landing at Meriwest Credit Union, I had spent most of my career in banks and can say beyond a shadow of a doubt that banks are credit score lenders; meaning that they want to see a specific score before looking at the rest of your file. If your score is 740 or over your app goes on the “to be reviewed further” pile. If their bottom line number is 740 and your application comes in at 739, your app goes on the declined pile. I can’t tell you how many very good applicants are turned away from banks every day for missing the credit score by one point!

Credit unions take a more holistic approach to lending. We tend to look at the whole person rather than just one part of them. The FICO Score is not the only item we review at a credit union when you apply for a car loan or other form of credit. Granted, we are also looking for a 740 score like the banks and if your score comes in below a certain point, we may not be able to help you either. However, if you miss the bottom line credit score by a bit, we don’t automatically decline you. We want to see your physical credit report to see if there is any information on there that would help your situation. We want to see how long you have been a member, how long you have worked at your current job, and how long you have lived in your home and town.

Our ultimate goal is to find a way to help our member. A credit union might slightly raise the interest rate to offset the risk they accept in making a loan to someone with a less than perfect credit score. This is referred to as risk based pricing. As the FICO goes down, the amount of risk involved in lending to that person goes up. Many credit unions have a matrix that tells them the rate to charge for particular ranges in FICO Scores.

How do we maintain a strong FICO Score? Watch for our future blog postings! We will have blogs on credit management, credit collections, credit repair, and other financial issues that touch all of our lives.

Do you have a question or want to learn more about FICO Scores? Contact me, The Meriwest Credit Union Guy, Greg Meyer at Would you like more information on Meriwest Credit Union and what we offer? Please go to

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