Just What Is Your Credit Score And Just How Can It Affect Your Ability To Borrow Money?
Feb 2, 2009 Credit Card Dept
We all know that we have a credit report which is compiled by a number of major credit bureau and a particularly important part of your three bureau credit report is your FICO score. But just what is your FICO score and how can it influence your borrowing choices?
FICO is an acronym formed from the first letters of the Fair Isaac Corporation who worked out this method of credit scoring and it is a number which is typically betwen 350 and 850 that ranks your credit worthiness according to the proprietary algorithm devised by the company, with 350 being the worst score and 850 being the best.
Although 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 more important factors. For instance, any late payments will reduce your score and the greater the number of late payments you have and the later they are the more heavily the score is affected. The total amount of debt which you carry each month is yet another factor. 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 FICO score of below approximately 620 is considered marginal and a score under 580 is decidedly poor. A score of 720 and above is considered to be very good to excellent. A FICO score which comes in between 620 and 720 represents something of a gray area where items other than simply your FICO score will play an important part in any lending decisions.
Mortgage companies, banks, credit card issuers and others will look at your FICO score as a very important element in deciding whether or not to grant you a loan. Lenders will also take your FICO score into consideration when setting the interest rate to charge you. Everything else being equal the greater your score the better the interest rate you will have to pay.
Frequently 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 will have a heavy influence on whether or not lenders will lend and at what rate they will lend.
Another extremely important factor nowadays is the use of computers which has altered the financial industry markedly over the past 20 years and also given consumers far more easy and fast access to services and products through the Internet.
Even with all these changes the FICO score remains a primary tool for the majority of lenders and, while it might not determine the final decision, it most assuredly influences the ‘first cut’ when lenders are presented with a pile of loan applications either approve or disapprove.
Happily for those people who are in some financial difficulty there are alternatives and even if your credit score is not very high you nonetheless have several options. The first thing you need to do is to get some free debt information and set into motion a plan to better your credit score.
As you gradually remove your outstanding overdue debts by paying them down or negotiating with the lender your FICO score will gradually increase. And remember that the age of your 30 and 60 day past due and late payments is a factor in computing your score.
While you are raising your score you can also look around for lenders prepared to take a higher risk by lending you money. The downside is such loans nearly always carry a higher rate of interest. If you are able to your best approach is to see if you can forego borrowing for a while while you work to increase your credit score.
Tags: "Fico, credit, credit report, credit score, debt, loans
