What Is Your FICO Score And How Does It Impact On Your Ability To Raise A Loan?
Many of us know that we have a credit record which is compiled by a number of major credit bureau and one particularly important element of your three bureau credit report is your FICO score. But what exactly is your FICO score and how can it influence your debt management choices?
FICO is an acronym formed from the first letters of the Fair Isaac Corporation who came up with this system of credit scoring and is a number that is usually betwen 350 and 850 that ranks credit worthiness using the proprietary algorithm formulated by the company, with 350 being the poorest score and 850 being the best.
Although the algorithms are a closely guarded trade secret, over the decades many people have reverse engineered several of the more important factors. For instance, late payments will lower your score and the more late payments you have and the later they are the more heavily the score is reduced. Another element is the total amount of debt that is carried each month. Another less important factor is the number of credit cards you hold and the number of credit checks carried out out on your account.
Any score under around 620 is considered marginal and a FICO score of less than 580 is poor. A FICO score of 720 or more is considered to be very good to excellent. A score that falls between 620 and 720 represents a kind of gray area in which factors other than simply your FICO score will play a more significant role in any loan decisions.
Mortgage lenders, banks, credit card issuers and others will use your FICO score as a very important factor in deciding whether to make a loan. They will also take your score into account when setting the interest rate to charge you. Other things being equal the higher your score the lower the interest rate you will be charged.
Frequently of course all other things are not equal and prevailing interest rates in general, the present demand for loans, the overall economy and other factors have a substantial influence on whether lenders will grant loans and at what rate they will lend.
Another extremely important factor in the equation nowadays is the widespread use of computers which has changed the financial industry markedly during the past 20 years and given consumers far more direct access to services and products through the Internet.
Even with all these changes the FICO score remains a primary tool for almost all lenders and, although it may not be the determining factor in the final decision, it unquestionably influences the ‘first cut’ when lenders are presented with a stack of applications to either approve or disapprove.
Happily for those people who have financially slipped there are choices and even if your credit score is low you nonetheless have several options open to you. The first thing you need to do is to get some debt assistance and set get yourself a plan to raise your score.
As you gradually get rid of your outstanding overdue debts by paying them off or negotiating with the creditor your score will slowly rise. And bear in mind that the age of your 30 and 60 day past due and late payments is an element in working out your FICO score.
At the same time as impoving your score you can also shop around for alternative lenders willing to take a higher risk by lending you money. The problem of course is that such loans nearly always carry a higher interest rate. If you are able to your best approach is to see if you can go without borrowing for as long as possible while you work to improve your FICO score.
