Consumer credit loans can affect FICO score


However, borrowing from high-rate lender won't bar refinancing

March 25, 2001|By JONATHAN A. AZRAEL

Dear Mr. Azrael,

I have questions about FICO scores, which are used by credit reporting companies to rate the creditworthiness of borrowers. An article in the Jan. 21 issue of The Sun stated that borrowers using high-rate consumer credit loan companies take a hit on their FICO scores.

Will borrowing from a high-rate loan company hurt my ability to refinance my home loan with a lower-rate mortgage company or savings bank? Will high-rate borrowing affect my ability to finance the purchase of a second home?

Cornelia Rooks


Dear Ms. Rooks,

A FICO score is a number produced by Fair, Isaac & Co. and reported to credit reporting agencies. It is based on information gathered from lenders, credit-card companies and other companies.

FICO scores - which range from 300 to 850 - are based on a variety of factors, such as whether you pay on time, how much of your credit line you use and whether you've had bankruptcies, collections or judgments. The higher your FICO score the better your credit rating.

Borrowing from a high-rate consumer credit company will negatively affect your FICO score. These lenders generally charge higher rates and more points than savings banks or some mortgage companies. Lenders that charge higher interest rates usually have less strict qualifications for extending credit.

But just because you've borrowed from a high-rate lender does not prevent you from refinancing with a lower-rate lender.

Steven Isaac, president of Atlantic Financial Inc., said other factors, such as a good payment history and how much credit you have, will be important in a lender's credit decision.

Other factors also enter into loan underwriting.

The value of the collateral is very important. Another important consideration is your capacity to repay the loan.

A mortgage broker or mortgage lender can help you analyze your credit rating and suggest steps you can take to improve your credit score. In fact, Fair, Issac & Co. announced last week that the public at large can find out its credit score, for a fee, by going to its Web site,

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