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April 06, 2001 02:39:37
Credit Scores to be a Secret No Longer

Paul Snider
CEO of CreditIQ

The response to my last article on credit scoring and in light of the new events that have taken place I decided to write this as a follow up.

Consumers will now be armed with additional information, which will allow better decisions when accepting terms of loans for automobile and mortgage purchases. Below is an excerpt from a recent article published on credit scoring.

WASHINGTON - The Goliath gatekeeper of credit scores has just yelled uncle. Next month Fair, Isaac, the creator of FICO scores used by numerous lenders, plans to provide consumers with the three-digit grade that plays a giant part in determining who receives loans and how much they pay.

What a difference a few months make.

In March the San Rafael, Calif.-based Company was steadfast against the disclosure of credit scores, and a mathematical computation that tells lenders how likely a consumer is to repay a loan or make a payment on time.

Now consumers cannot only find out their score which in the past was not available the can also log on at and learn what determines a high or low score by reviewing the factors which make up credit scoring. Armed with this new and powerful information consumers will be in a better position to enhance their personal credit scores and in many cases save money because they will be able to negotiate lower interest rates.

As professional automobile finance managers this is very important because during the credit interview you can explain how the score is developed, factors that will affect the score and why rates are set based on the credit quality of each consumer. By doing this you enhance consumer loyalty in addition to helping credit challenged consumers take action to clean up past problems plus drive home the car of their dreams.

The major factors affecting credit scores are:

  1. Payment History = 35% of the total score
  2. Amounts Owed = 30% of the total score
  3. How Established is Credit = 15% of total score
  4. New Credit = 10% of the total score
  5. Types of Credit = 10% of the total score

A score takes into consideration all these categories of information, not just one or two. No one piece of information will determine a score. FICO scores do not take into consideration income or type of credit a person is applying for. Scores consider both positive and negative information and does not consider race, gender, religion or nationality. The score itself represents how likely an individual is to repay or loan or make credit payments on time by using a mathematical equation that evaluates information from a credit report and comparing it to the patterns of to thousands of past credit reports. In many cases good credit can be adversely affected by the frequency of late payments or applications made for new credit.

In addition to credit scores lenders also use various scoring models such as the ones developed by Equifax and Creative Business Solutions. This score is much different than FICO scores because it is based on historical data derived from actual loan profiles and various static pool information combined with factors such as geographic location, age, occupation and income. Dr. Pat Nanda, one of the countries foremost experts on credit models has developed numerous programs for lenders with each one being unique and proprietarily.

It is very difficult for automobile managers to completely understand these types of credit models and serves as another reason for complete customer interviews prior to sending credit information our to lenders. When finance managers take the time to review credit bureaus and applications with customers, ask questions and find reasons for lenders to extend credit the end result is a satisfied customer, lender and dealership because this customer will most likely refer additional customers plus make payments on time.

I hope this information has been helpful and will serve as another tool for finance professionals to use in helping consumers obtain credit for automobile purchases.

Paul Snider is CEO of CreditIQ, Inc.parent company to VOISYS Systems Corporation, the leader in Loan by Phone products. Paul is a renowned industry expert in subprime finance and has conducted workshops and seminars across the country. Paul contributes monthly articles for numerous automotive trade magazines and can be reached at





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