Just What Is Your FICO Score And Precisely How Does It Affect Your Ability To Borrow Money?
Most people are aware that they have a credit report that is kept by several major credit bureau and a very important element of your three bureau credit report is your FICO score. So what exactly is your FICO score and just does it affect your borrowing choices?
FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who developed this system of credit scoring and it is a number that is generally betwen 350 and 850 that ranks your credit worthiness according to a proprietary algorithm devised by the company, with 350 being the worst score and 850 being the best.
In spite of the fact that the precise details of the algorithms are a closely guarded secret, over the years many people have be able to word out several of the important factors. For example, any late payments will lower your score and the more late payments you have and the later those payments are the more heavily the credit score will be affected. Another factor is the total amount of debt which is carried each month. A less important factor is the number of credit cards you hold and the number of credit checks performed out on your account.
Any FICO score below approximately 620 is considered to be marginal and a score under 580 is decidedly poor. A FICO score of 720 or more is very good to excellent. A FICO score that comes in between 620 and 720 represents a kind of gray area in which items other than simply your FICO score will play an important role in loan decisions.
Banks, mortgage lenders, credit card companies and other lenders will use your FICO score as a very important element in deciding whether to grant you a loan. They will also take your FICO score into consideration when deciding what interest rate to charge you. Everything else being equal the higher your score the lower the interest rate you will be charged.
In many cases of course everything thing else is not equal and general interest rates, the overall demand for loans, the overall economy and a host of other factors have a substantial influence on whether or not lenders will lend and at what rate.
Yet another very important factor now is the widespread use of computers which has altered the financial industry markedly during the past 20 years and provided consumers with far more fast access to products an services through the Internet.
Despite all these changes your FICO score remains a main tool for the majority of lenders and, while it may not be the determining factor in the final decision, it certainly influences the ‘first cut’ when lenders are presented with a pile of applications to approve or disapprove.
Fortunately for those who are having some financial problems there are alternatives and even if your FICO score is not very high you nonetheless have several options open to you. The first thing you need to do is to get some free debt information and set find a way to improve your credit score.
As you slowly clear your outstanding debts by paying them down or negotiating with your lender your FICO score will slowly improve. And do not forget that the age of those 30 and 60 day past due and late payments is a consideration in working out your score.
At the same time as impoving your FICO score you can also look around for lenders prepared to take a higher risk and lend you money. The problem of course is that these loans nearly always carry a higher interest rate. If you can your best course of action is to try to go without borrowing for a time while you work to improve your FICO score.