Removing Credit Scores from the Equation
Updated: Jun 25, 2019
Defined as a statistical number that evaluates creditworthiness of a consumer based on credit history. Created by the Fair Isaac Corporation (FICO), lenders use credit scores to evaluate the probability an individual will repay his or her debts. Credit score ranges from 300 to 850; the higher the score, the more financially trustworthy a person is.
A credit score plays a key role in a lender's decision to offer credit; for example, those with credits score below 640 are considered subprime borrowers (high credit risk for lenders). Because of this, lending institutions charge higher interest rates on subprime mortgages with shorter repayment terms to compensate carrying the risk. In contrast, a credit score of 700 or above is considered good; as a result, borrowers with good credit scores receive low interest rates resulting in them paying less money over the life of the loan.
NCF II believes there is something fundamentally wrong with a credit market that penalizes and leaves out more than half the population of the world, because they are considered not credit-worthy. Now more than ever, its paramount a new way to distribute capital is introduced to the financial industry; specifically, NCF II's concept of social business offering greater capital available to more people.
NCF II intends to bring back the “American Dream” to as many people as possible through real estate ownership. The family home continues to hold iconic status for most Americans; it’s a tangible indication middle class has been achieved; this is also a sign of guaranteed membership into a neighborhood - a defining characteristic of who people are and how they raise their children.
The home is also a family’s hedge against economic reversals and rent increases in the community; with each monthly payment, families who buy, rather than rent protect themselves against the risk of rising rents. Traditionally, they also build wealth in their home, securing an appreciating asset that can provide them rent-free housing in their old age, a source of funds in an emergency, and possibly an inheritance for their children.
Top Ten Penalties for low credit scores
1. High interest rates on credit cards and loans.
2. Credit and loan applications are likely to be denied.
3. Difficulty getting approved for an apartment or house.
4. Upfront security deposits on utilities.
5. Can’t get a cell phone contact.
6. Higher percentage of being denied employment.
7. Difficulty starting your own business.
8. Higher insurance premiums.
9. Calls from debt collectors.
10. Difficulty purchasing a vehicle.