Arizona Mortgage Guru » Why Lenders Care About Credit Scores

Many borrowers ask me why a silly three digit number, the credit score, is so important. Well, for one, it gives lenders a snapshot of financial behavior. The way the scores are calculated provide a really good instant photograph of the borrower’s potential to repay the loan in a timely manner. After all, lenders are in business to make money and they need a method to gauge the risk of exposure. The score is dynamic and can change dramatically based on a borrowers debt management.

With that in mind, below is a numerical analysis of how lenders view the risk of default for different credit score ranges. The risk is of course reflected in the interest rate offered to the borrower.

Credit scoring and loan default ratio

As you can see, a credit score it not just any silly three digit number! Visit my website to learn how I can help you face your credit fears!

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Categories: Credit Bureaus, Credit Scores, Interest Rate

5 Responses to “Why Lenders Care About Credit Scores”

Arizona Mortgage Guru » Arizona Ranked 46th sent a pingback on July 12, 2007, 11:16, am

[...] purchase putting 20% down. So, a $160,000 loan size. Also this they only looked at borrowers with excellent credit. Be aware that higher loan amounts will have higher closing costs since items such as origination [...]

Arizona Mortgage Guru » Blog Archive » Forget Your House, How Much is Your Credit Score Worth? sent a pingback on September 11, 2007, 3:44, pm

[...] So, what is a credit score worth to you? I know its worth a lot to the lender. [...]

Guy wrote a comment on January 19, 2008, 5:14, pm

How much more of a positive effect does putting a greater percentage down on the home purchase vs. a low credit score.

For example, if I have a credit score of 620, but put down 20% down, how much more “pleasing” is this to a lender vs. if I have a credit score of 750, but put 0% down (or only 5%).

Thanks,

Arizona Mortgage Guru » Does a Higher Down Payment Compensate For a Low Credit Score? sent a pingback on January 21, 2008, 9:39, am

[...] reader reacts to my post titled “Why Lenders Care About Credit Scores” and sends this excellent question: How much more of a positive effect does putting a greater [...]

Arizona Mortgage Guru » What A Lower Credit Scores Costs You Today sent a pingback on April 21, 2008, 9:27, am

[...] Why Lenders Care About Credit Scores [...]