Lenders receive an objective status concerning your credit risk through your credit score. The most widely used credit bureau score is the FICO score. The scoring process helps people in many ways.
- People get loans faster because of it. Loan approvals come faster, since the scores are delivered very quickly. Thus, credit decisions are made quickly.
- Credit scores reflect credit risk only. Thus, factors like race, gender, religion, and so forth, are not in the equation. This promotes fairness.
- Past credit mistakes eventually fade away with time. If you have made financial mistakes in the past, it will not stay with you forever. Recent good payment habits appear on your credit report. The big picture is recorded. Thus, new healthy habits make old mistakes less visible. You can work on improving your credit score.
- It helps lenders who use it to approve loans. Credit scoring gives accurate information to make decisions. Lenders can determine if individuals are likely to do well in the future, even though if credit report shows some problems. People with scores lower than a lender's cutoff benefit from scoring, as well, as some lenders offer a variety of credit products that are geared to varying risk levels. If you are rejected by one lender, try another one, as each has its own guidelines.
- It, along with other forms of automated credit processes, lowers credit rates. Since more credit is available, the cost of credit for borrowers goes down. Further, since you can know and work on improving your score, you can get more favorable interest rates.