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Looking For A Loan? You May Have Better Credit Than You Think

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If you're considering taking out a loan, you could be in luck.

There's a new way borrowers may be assessed for credit risk and it could provide a more positive and accurate picture of credit behavior. And that could lead to lower interest rates on loans from cars to mortgages.

With this new credit scoring system from  Fair Isaac Corp. (FICO) and the data aggregate firm CoreLogic,  some 44 percent of the U.S. population (more than double) went from pretty decent to crazy good credit, reports   Businessweek.

But it could get even better than that.  Tim Grace, vice president of CoreLogic, estimates that 70 percent of people will end up with better credit scores due to the new calculation, which factors in new metrics for scoring.

The "added visibility" into credit behavior and future credit risk gives lenders "a more precise score and picture of the borrower," Grace told Businessweek.

The credit rankings still use data that credit bureaus typically track, such as mortgages, credit cards, property records and liens. But now it also takes into consideration short-term loans for used cars and rental information.

Using that data spurred credit scores to rise, particularly among those whose scores were in the range of mid 600 to mid 700, according to a FICO analysis. The higher credit scores could make a huge difference in the interest rates lenders offer to borrowers who are considered an excellent or very good credit risk.

FICO scores range from 300 to 850. Among consumers with credit scores in the mid 500 to lower 600 range, the analysis showed the changes were small.

The new score will not replace the traditional FICO score, sadly. Regular FICO scores are still required by many lenders but banks can use the new score to supplement the regular score, which would lead to a more positive assessment for many consumers.

Grace says the combined data from Core Logic and FICO can be 10 percent more effective at predicting mortgage defaults for the riskiest 10 percent of borrowers.

In a related development, Experian, one of the three major U.S. credit bureaus, says it's now using a similar new scoring model to measure creditworthiness among consumers who have little or no credit history. The new model is aimed at consumers who don't have a bank account as well as at those who've had poor credit histories and have been living cash-only.

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