What Is Your Credit Score And Precisely How Can It Impact On Your Ability To Raise A Loan?
We all know that we have a credit record which is kept by a number of major credit bureau and one particularly important part of your three bureau credit report is your FICO score. So what exactly is your FICO score and how does it affect your debt management choices?
FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who worked out this method of credit scoring and is a number which is usually betwen 350 and 850 that ranks your credit worthiness according to a proprietary algorithm invented by the company, with 350 being the worst score and 850 being the best.
Despite the fact that the algorithms are a tightly held secret, over the decades a lot of people have reverse engineered many of the more important elements. For example, any late payments will lower your score and the greater the number of late payments you have and the later they are the more heavily your score will be reduced. The total amount of debt carried each month is yet another factor. Another less important factor is the number of credit cards you have and the number of credit checks undertaken out on your account.
Any score less than about 620 is considered marginal and a FICO score below 580 is decidedly poor. A FICO 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 in which items other than simply your FICO score will play a more significant part in lending decisions.
Mortgage companies, banks, credit card companies and other lenders will look at your FICO score as an extremely important element in deciding whether or not to make a loan. These lenders will also take your FICO score into account when setting the interest rate to charge you. All other things being equal the greater your score the lower the interest rate you will have to pay.
Many times of course all other things are not equal and prevailing interest rates in general, the overall demand for loans, the overall economy and other factors have a significant influence on whether lenders will grant loans and at what rate they will lend.
Another very important factor in the equation nowadays is the use of computers which has altered the financial industry tremendously during the past 20 years and provided consumers with much more easy and fast access to products an services through the World Wide Web.
In spite of all these changes your FICO score remains a main tool for almost all lenders and, although it may not determine the final decision, it clearly influences the ‘first cut’ when faced with a pile of applications to approve or disapprove.
Luckily for those people who have financially slipped there are alternatives and even if your FICO score is low you nevertheless have several options open to you. The first thing you should do is to get some free debt information and set devise a plan to better your FICO score.
As you work to eliminate those outstanding debts by paying them off or by negotiating with your lender your score will slowly improve. And remember that the age of those 30 and 60 day past due and late payments is an element in working out your FICO score.
While you are raising your credit score you can also look around for alternative lenders prepared to take a higher risk and lend you money. The downside is that those loans nearly always carry an increased interest rate. If you can your best course of action is to see if you can go without borrowing for a time while you work to increase your credit score.
