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    FICO Credit Scoring System

    Introduction to Credit Scoring

    Large institutions which grant credit to the public have started to use the FICO credit scoring system rather than the manual underwriting of credit reports. This page is an introduction to understanding how this credit scoring system will work. The FICO scoring is currently being used in underwriting 2nd Trust Deeds, higher loan to value loans, and the riskier A- through D type paper.

    Credit scoring, pioneered by Fair, Isaac, has been used by credit grantors since the 1950's. Credit scoring is widely used in many industries to assist with a variety of credit decisions.

    Credit scoring assesses credit quality of an individual about whom a decision is being made concerning the extension or use of credit. The credit assessment is made by means of a scorecard which calculates a numeric value, or score, for each account holder that the credit grantor wants to evaluate.

    Score calculation is based upon information that has proven to be indicative of future credit performance.

    Credit scores rank applicants for credit, or existing credit accounts, by risk.

    The scorecard is comprised of characteristics, which are items of past and present information that are predictive of future credit performance. For each characteristic, there are a number of attributes, or "answers". Each scored individual will have one attribute for each characteristic, based on their credit report at the time of scoring. Some of the characteristics looked at are:

    1. Number of bank card trade lines

    2. Worst level of delinquency on an installment loan

    3. Number of months in file

    4. Number of months since most recent bankcard opening

    5. Number of months since the most recent derogatory public record

    6. Delinquency on accounts

    7. Number of accounts with balances

    8. Length of revolving credit accounts

    9. Date of inquiries

    10. Number of retail accounts

    These are just a few of the items that are looked at to determine the FICO Score. Most lenders consider a 680 score or above to be satisfactory. If the rating is lower than a 680, than other financing is available, but not at the same rate.

    As mentioned above, this scoring system is being used on certain loans only at this time. But it is looking like the wave of the future, so don't be surprised if you see it soon in your neighborhood!

    If you would like further information on the credit scoring programs, please E-mail or call me at 818-920-1600.

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