They only become aware of it if there is a problem because of a low score. If a mortgage is denied, the applicant may have to move down to a more expensive subprime loan. At the other end of the spectrum, there is a possibility in the future that borrowers with very high credit scores may be rewarded with slightly lower interest rates, according to Grunwald. Credit agencies crunch numbers taken from public records. That personal credit information is weighted according to a formula and a single number is produced.
Credit scoring is an attempt to automate the process previously done by human underwriters.
It's faster and eliminates subjectivity. The firm's FICO scores range from a low of about 350 to a high of 900. Economists at the Federal Reserve Board analyzed the performance of loans and concluded that borrowers with low FICO scores have substantially higher mortgage delinquency rates than those with medium or high scores. Marc Smith, president of the MBA, said credit scoring now is being used in about two-thirds of all home loans and the percentage is increasing rapidly. Proponents of credit scoring maintain it is totally unbiased.