What Is Your Credit Score And Just How Does It Affect Your Ability To Get A Loan?
Saturday, January 31st, 2009 Subscribe To Our Feed
Most people are aware that they have a credit report which is maintained by several major credit bureau and one very important element of your three bureau credit report is your FICO score. But what is your FICO score and how can it influence your borrowing choices?
FICO is formed from the first letters of the Fair Isaac Corporation who worked out this method of credit scoring and is a number that is typically betwen 350 and 850 which ranks your credit worthiness according to a proprietary algorithm formulated by the company, with 350 being the worst score and 850 being the best.
Despite the fact that the precise details of the algorithms are a tightly guarded secret, over the decades a lot of people have be able to word out several of the more important factors. For instance, 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 credit score is affected. Another factor is the total amount of debt which is carried each month. Another not quite so important factor is the number of credit cards you hold and the number of credit checks undertaken out on your account.
Any FICO score below approximately 620 is considered to be marginal and a FICO score of below 580 is poor. A score of 720 or more is considered to be very good to excellent. A FICO score that falls between 620 and 720 represents something of a gray area in which factors other than your FICO score will play a more significant role in any loan decisions.
Mortgage companies, banks, credit card issuers and others will look at your FICO score as a very important factor in deciding whether to make a loan. They will also take your FICO score into account when setting the interest rate to charge you. Other things being equal the greater your score the better the interest rate you can obtain.
Many times of course everything thing else is not equal and general interest rates, the present demand for loans, the general economy and other factors have a substantial influence on whether lenders will grant loans and at what rate they will lend.
Another very important factor these days is the widespread use of computers which has altered the financial industry tremendously over the past 20 years and given consumers much more fast and simple access to products an services through the World Wide Web.
Even with all these changes your FICO score remains a primary tool for most lenders and, while it might not be the determining factor in the final decision, it unquestionably influences the ‘first cut’ when faced with a pile of applications to either approve or disapprove.
Fortunately for those people who are having some financial problems there are choices and even if your credit score is low you nonetheless have a number of options. The first thing you ought to do is to get some debt support and set find a way to raise your score.
As you gradually get rid of those overdue debts by paying them off or 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 consideration in working out your credit 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 difficulty of course is that these loans almost always carry an increased interest rate. If possible your best course of action is to try to go without borrowing for a while while you work to improve your FICO score.
