Getting credit is an important part of overall financial planning. Purchasing a home or a car is much more feasible by getting a loan. However, lenders do not just give away their money. Most loans require a credit check that includes your credit score. That credit score lets the lender know at a glance what your credit history looks like. But, what if you don't have a credit score, or if yours is too low? No FICO financing might be an option for you.
History
Traditionally, getting a loan meant having a good long-term relationship with a local bank. However, that left a lot of people without access to credit. It also left a lot of lenders without enough quality borrowers to lend money too. Credit reports and credit scores changed all of that by allowing lenders to see a borrower's credit history from an unbiased third-party. Recently, though, banks and lenders have seen that there can be some value in lending to those without well established credit scores.
Identification
No FICO financing occurs when a lender offers a loan or credit card without first obtaining the credit score of the borrower. Such loans are often either secured by property or other deposits, or they may require that the borrower satisfy other conditions such as having an account with the bank.
Types
The most common type of no FICO financing is also known as no credit check financing. For these loans the lender allows the borrower to get credit without checking the credit history or credit score at all. However, no FICO financing also takes place when the lender pulls a credit report, but does not order a credit score. Doing credit reviews by hand like this is typically done for customers with unusual or non-traditional credit history that might translate well when scored in the usual manner.
Benefits
The primary benefit of no FICO financing is that it allows customers without well established credit to get loans. Often, this is the case for young borrowers who may literally have no credit because they have never had a loan before. This can also be the case for recent divorcees whose credit was always in the spouse's name. Lenders benefit by charging higher interest rates for loans that they did not do a FICO check on.
Warning
No FICO financing is ripe with fraud. Many people with bad credit in desperate situations believe offers that are too good to be true. Beware of no FICO score loans or no credit check offers that have wide open terms.
Due to the higher possibility of loss from lending without a credit check, lenders are typically careful about who qualifies.
0 comments:
Post a Comment