Finance Articles

Just What Is Your FICO Score And How Does It Affect Your Ability To Borrow Money?

Many people are aware that they have a credit record that is compiled by a number of major credit bureau and a particularly important part of your credit record is your FICO score. So what exactly is your FICO score and just can it influence your debt management decisions?

FICO is an acronym formed from the first letters of the Fair Isaac Corporation who created this method of credit scoring and is a number that is usually between 350 and 850 that ranks credit worthiness according to a proprietary algorithm devised by the company, with 350 being the poorest score and 850 being the best.

In spite of the fact that the algorithms are a closely guarded secret, over the years many people have reverse engineered several of the more important factors. For instance, any late payments will lower your score and the more late payments you have and the later those payments are the more heavily your score is reduced. The overall amount of debt which you carry each month is another element. Another not quite so important factor is the number of credit cards you have and the number of credit checks performed out on your account.

Any score less than around 620 is considered to be marginal and a score less than 580 is poor. A score of 720 or more is considered to be very good to excellent. A score that falls between 620 and 720 represents something of a gray area in which factors other than your your FICO score will play a more significant part in any lending decisions.

Banks, mortgage companies, credit card companies and other lenders will look at your FICO score as an extremely important factor in deciding whether or not to make a loan. Lenders will also take your score into account when deciding what interest rate to charge you. All other things being equal the higher your score the lower the interest rate you can obtain.

Often of course everything thing else is not equal and prevailing interest rates in general, the overall demand for loans, the general economy and other factors have a heavy influence on whether or not lenders will lend and at what rate.

Yet another extremely important factor in the equation nowadays is the widespread use of computers which has altered the financial industry markedly over the past 20 years and also provided consumers with far more fast access to services and products through the Internet.

In spite of all these changes your FICO score is still a primary tool for most lenders and, although it might not be the determining factor in the final decision, it most assuredly influences the 'first cut' when lenders are presented with a stack of loan applications to approve or disapprove.

Luckily for those who are having some financial problems there are choices and even if your credit score is low you nonetheless have several options. The first thing you need to do however is to set draw up a plan to raise your FICO score.

As you slowly remove those outstanding overdue debts by paying them down or by negotiating with your lender your FICO score will gradually improve. And bear in mind that the age of your 30 and 60 day past due and late payments is a consideration in working out your FICO score.

While you are improving your score you can also shop around for alternative lenders prepared to take a higher risk and lend you money. The downside is that these loans nearly always carry an increased interest rate. If you are able to your best course of action is to try to go without borrowing for a time while you work to increase your credit score.

TheDebtAssistanceCenter.com provides information on a range of topics including understanding your credit report score and exists to provide debt assistance for borrowers.

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