Are you wondering your credit score and how does it impact on your future borrowing potential? We all know that we have a credit report which is compiled by several major credit bureau and a particularly important part of your three bureau credit report is your FICO score. But what is your FICO score and how does it affect your borrowing decisions?
FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who developed this system of credit scoring and is a number that is usually betwen 350 and 850 that ranks your credit worthiness according to the proprietary algorithm devised by the company, with 350 being the poorest score and 850 being the best.
Though 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 important factors. For instance, late payments will reduce your score and the more late payments you have and the later they are the more heavily your score will be lowered. The overall amount of debt which you carry each month is another element. A less important factor is the number of credit cards you have and the number of credit checks undertaken out on your account.
Any score of under approximately 620 is considered marginal and a score less than 580 is poor. A FICO score of 720 and above is considered to be very good to excellent. A FICO score that falls between 620 and 720 represents a kind of gray area where factors other than your FICO score will play a more significant role in any loan decisions.
Banks, mortgage companies, credit card issuers and other lenders will look at your FICO score as a very important factor in deciding whether or not to make a loan. They will also take your FICO score into account when setting the interest rate to charge you. Everything else being equal the higher your score the better the interest rate you will be charged.
Many times of course all other things are not equal and prevailing interest rates in general, the current demand for loans, the general economy and a host of other factors have a heavy influence on whether lenders will lend and at what rate.
Yet another extremely important factor now is the widespread use of computers which has changed the financial industry significantly over the past 20 years and provided consumers with much more easy and fast access to products an services using the Internet.
Despite all these changes your FICO score is still a main tool for most lenders and, while it might not determine the final decision, it certainly influences the ‘first cut’ when presented with a stack of loan applications either approve or disapprove.
Happily for those people who are in some financial difficulty there are choices and even if your FICO score is not very high you nonetheless will have a number of options. The first thing you need to do is to get some free debt information and set find a way to raise your credit score.
As you work to clear those outstanding debts by paying them off or by negotiating with the lender your FICO score will gradually improve. And do not forget that the age of those 30 and 60 day past due and late payments is a factor in working out your credit score.
While you are raising your score you can also shop around for lenders who are willing to take a higher risk and lend you money. The difficulty of course is those loans nearly always carry a higher interest rate. If possible your best course of action is to see if you can forego borrowing for a while while you work to increase your credit score.
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