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Just What Is Your FICO Score And How Can It Affect Your Ability To Get A Loan?

By: Donald Saunders

We all know that we have a credit report which is maintained by several major credit bureau and a very important element of your credit report is your FICO score. So just what is your FICO score and how does it affect your debt management decisions?

FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who came up with this method of credit scoring and is a number which is usually between 350 and 850 which ranks credit worthiness according to the proprietary algorithm devised by the company, with 350 being the worst score and 850 being the best.

Although the details of the algorithms are a tightly held secret, over the years a lot of people have be able to word out several of the more important elements. For example, late payments will lower your score and the more late payments you have and the later these payments are the more heavily the credit score will be reduced. Another factor is the overall amount of debt which you carry each month. Another 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 of below about 620 is considered as marginal and a FICO score of under 580 is poor. A FICO score of 720 or more is considered to be very good to excellent. A FICO score which comes in between 620 and 720 represents a kind of gray area in which items other than your merely your FICO score will play an important role in lending decisions.

Mortgage lenders, banks, credit card companies and others will use 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 consideration when deciding what interest rate to charge you. All other things being equal the higher your score the lower the interest rate you can obtain.

Many times of course all other things are not equal and general interest rates, the current demand for loans, the overall economy and other factors have a heavy influence on whether or not lenders will grant loans 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 tremendously during the past 20 years and given consumers far more easy and fast access to products an services through the Internet.

Even with all these changes the FICO score is still a main tool for almost all lenders and, though it may not be the determining factor in the final decision, it certainly influences the 'first cut' when lenders are presented with a pile of applications to approve or disapprove.

Fortunately for those people who are having some financial problems there are alternatives and even if your credit score is not very high you nonetheless have several options. The first thing to do however is to set into motion a plan to improve your score.

As you gradually remove those overdue debts by paying them off or negotiating with the lender your score will slowly improve. And bear in mind that the age of those 30 and 60 day past due and late payments is a consideration in working out your score.

At the same time as increasing your score you can also look around for lenders prepared to take a higher risk by lending you money. The difficulty of course is that those loans nearly always carry an increased rate of interest. If possible your best approach is to see if you can go without borrowing for a time while you work to raise your credit score.

Article Source: http://www.article-exposure.com

TheDebtAssistanceCenter.com provides information on a range of topics including settling credit card debt and exists to provide debt assistance for borrowers.

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