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!
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.
This week’s
featured article: http://www.creditcards.com/credit-card-news/busting-seven-common-credit_myths-1267.php
Do you have
a question or want to learn more about FICO Scores? Contact me, The Meriwest Credit
Union Guy, Greg Meyer at Gmeyer@Meriwest.com. Would you like more information on Meriwest Credit Union and what we offer? Please go to https://www.meriwest.com.
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