Expert: David - 6/4/2009

Question
Hi David,
I'm doing some research on the operations of applying for loans and lines of credit and I hope you can answer a few questions for me. First, why do creditors need to know a prospective client's credit scord? 2.  Why are there so many different credit scores and why are they different?  Last what can these scores predict as related to a creditor's point of view?

Thanks in advance for your help.

Jeff Davis

Answer
Jeff-

This is a multi faceted question.  So I'll try to give you the most concise answer possible.

Simply put a credit score is a snapshot of who and how you've managed credit extended to you.

The credit scoring system is a quick indicator of risk for a creditor.  Based on how high or low a person's score the creditor can get an idea of how they will be treated.  That being the case the lender will base the cost of the loan or line of credit on that idea.  So to get approved at the best rate it's vital to have a good credit score.

The reason for such variables in the scores are based on a few factors such as length of time one has had credit,types of companies with whom you've done business and payment history to name a few. Companies gather this information and report it in different ways thus creating scores for patterns of behavior.

I feel as though I've said too much.  If you have any further questions, please contact me directly at 219-718-8566. I'll be more than happy to answer.

Hope this was helpful.

David