What Is Your Credit Score And Exactly How Can It Impact On Your Ability To Borrow Money?
We all know that we have a credit report which is compiled by a number of major credit bureau and a particularly important element of your three bureau credit report is your FICO score. But what is your FICO score and just does it affect your debt management decisions?
FICO is formed from the initial letters of the Fair Isaac Corporation who developed this system of credit scoring and is a number which is usually betwen 350 and 850 that ranks credit worthiness according to the 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 closely guarded secret, over the decades a lot of people have reverse engineered several of the important factors. For example, late payments will lower your score and the greater the number of late payments you have and the later they are the more heavily the score is affected. Another element is the total amount of debt that you carry each month. A not quite so important factor is the number of credit cards you hold and the number of credit checks carried out out on your account.
Any FICO score under approximately 620 is considered as marginal and a score below 580 is decidedly poor. A score of 720 and above is considered to be very good to excellent. A FICO score that comes in between 620 and 720 represents a kind of gray area where factors other than your FICO score will play an important role in any lending decisions.
Mortgage lenders, banks, credit card companies and other lenders will use your FICO score as an extremely important element in deciding whether to make a loan. Lenders will also take your FICO score into consideration when deciding what interest rate to charge you. All other things being equal the higher your score the better the interest rate you will have to pay.
In many cases of course all other things are not equal and prevailing interest rates in general, the present demand for loans, the general economy and a host of other factors have a substantial influence on whether lenders will lend and at what rate they will lend.
Yet another very important factor in the equation today is the widespread use of computers which has altered the financial industry greatly during the past 20 years and also provided consumers with much more fast and simple access to products an services through the World Wide Web.
Despite all these changes the FICO score remains a main tool for lenders and, though it might not determine the final decision, it most assuredly influences the ‘first cut’ when lenders are presented with a pile of loan applications approve or disapprove.
Happily for those who are in some financial difficulty there are choices and even if your credit score is low you nonetheless have several options open to you. The first thing you ought to do is to get some free debt information and set find a way to better your score.
As you gradually get rid of those outstanding debts by paying them off or by negotiating with your lender your FICO score will slowly improve. And bear in mind that the age of those 30 and 60 day past due and late payments is a factor in working out your score.
While you are raising your score though you can also look around for alternative lenders willing to take a higher risk and lend you money. The problem of course is that those loans almost always carry a higher rate of interest. If you can your best approach is to try to forego borrowing for a time while you work to improve your credit score.
