Posts Tagged ‘fico’

Exactly What Is Your Credit Score And Precisely How Can It Affect Your Ability To Get A Loan?

We all know that we have a credit report that is kept by a number of major credit bureau and one particularly important part of your three bureau credit report is your FICO score. But just what is your FICO score and just does it influence your debt management decisions?

FICO is an acronym formed from the initial 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 which ranks credit worthiness according to a proprietary algorithm invented 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 tightly guarded secret, over the decades many people have reverse engineered 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 overall amount of debt which you carry each month is another factor. Another less important factor is the number of credit cards you have and the number of credit checks performed out on your account.

Any score below around 620 is considered as marginal and a FICO score of less than 580 is decidedly poor. A score of 720 or more is considered to be very good to excellent. A score which falls between 620 and 720 represents a kind of gray area in which items other than merely your FICO score will play an important role in any loan decisions.

Banks, mortgage lenders, credit card companies and others will use your FICO score as an extremely important element in deciding whether to grant you a loan. These lenders will also take your score into account when deciding what interest rate to charge you. Other things being equal the higher your score the lower the interest rate you will have to pay.

Many times of course everything thing else is not equal and general interest rates, the current demand for loans, the general economy and a host of other factors will have a significant influence on whether lenders will lend and at what rate they will lend.

Another very important factor these days is the widespread use of computers which has changed the financial industry tremendously over the past 20 years and also given consumers far more direct access to services and products through the World Wide Web.

In spite of all these changes your FICO score is still a primary tool for the majority of lenders and, while it might not be the determining factor in the final decision, it certainly influences the ‘first cut’ when lenders are faced with a pile of loan applications approve or disapprove.

Luckily for those who are having some financial problems there are choices and even if your credit score is low you nonetheless will have a number of options. The first thing to do however is to get some free debt information and set find a way to increase your FICO score.

As you work to clear your outstanding overdue debts by paying them down or by negotiating with the creditor your FICO score will slowly rise. 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 FICO score.

While you are improving your credit score you can also shop around for lenders willing to take a higher risk by lending you money. The problem of course is that these loans nearly always carry a higher interest rate. If possible your best approach is to try to go without borrowing for a while while you work to improve your credit score.

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