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

by : Donald Saunders



Many people are aware that they have a credit report that is maintained by a number of major credit bureau and a particularly important element of your credit report is your FICO score. But just what is your FICO score and how can it affect your borrowing decisions?FICO is formed from the first letters of the Fair Isaac Corporation who devised this method of credit scoring and is a number that is usually between 350 and 850 which ranks credit worthiness according to a proprietary algorithm invented by the company, with 350 being the poorest score and 850 being the best.Despite the fact that the details of the algorithms are a tightly guarded secret, over the decades a lot of people have be able to word out many of the more important factors. For example, late payments will reduce your score and the greater the number of late payments you have and the later they are the more heavily your credit score will be lowered. Another element is the overall amount of debt that you carry each month. A less important factor is the number of credit cards you hold and the number of credit checks carried out out on your account.Any score of under about 620 is considered marginal and a? score of under 580 is poor. A? score of 720 or more is very good to excellent. A? score that comes in between 620 and 720 represents something of a gray area in which items other than your simply your FICO score will play an important role in loan decisions.Mortgage lenders, banks, credit card issuers and other lenders will use your FICO score as a very important element in deciding whether to make a loan. These lenders will also take your score into consideration when deciding what interest rate to charge you. All other things being equal the greater your score the better the interest rate you can obtain.Often of course all other things are not equal and general interest rates, the overall demand for loans, the general economy and other factors have a heavy influence on whether lenders will lend and at what rate.Another extremely important factor nowadays is the widespread use of computers which has changed the financial industry markedly during the past 20 years and also provided consumers with far more direct access to products an services using the World Wide Web.Despite all these changes your FICO score is still a primary tool for lenders and, although it may not be the determining factor in the final decision, it most assuredly influences the 'first cut' when presented with a pile of loan applications to either approve or disapprove.Fortunately for those people who are having some financial problems there are alternatives and even if your credit score is low you nevertheless have several options. The first thing you need to do however is to set get yourself a plan to raise your FICO score.As you work to eliminate your overdue debts by paying them down or negotiating with your creditor your FICO score will gradually increase. And remember that the age of your 30 and 60 day past due and late payments is a consideration in calculating your FICO score.At the same time as increasing your score you can also shop around for alternative lenders willing to take a higher risk and lend you money. The problem of course is such loans nearly always carry a higher rate of interest. If you are able to your best course of action is to see if you can go without borrowing for as long as possible while you work to raise your FICO score.