Just What Is Your FICO Score And Precisely How Does It Impact On Your Ability To Borrow Money?

We all know that we have a credit record that is compiled by several major credit bureau and a very important element of your credit record is your FICO score. But just what is your FICO score and how can it influence your borrowing decisions?

FICO is formed from the initial letters of the Fair Isaac Corporation who created this system of credit scoring and is a number that is typically between 350 and 850 which ranks credit worthiness according to the proprietary algorithm invented by the company, with 350 being the poorest score and 850 being the best.

Although the details of the algorithms are a tightly held trade secret, over the years a lot of people have reverse engineered many of the important elements. For example, any late payments will reduce your score and the greater the number of late payments you have and the later those payments are the more heavily the credit score is lowered. The overall amount of debt carried each month is yet another factor. 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 below approximately 620 is considered as marginal and a score less than 580 is poor. A score of 720 and above is considered to be very good to excellent. A score that falls between 620 and 720 represents a kind of gray area in which items other than your simply your FICO score will play an important role in any loan decisions.

Mortgage companies, banks, credit card issuers and others will use your FICO score as an extremely important element in deciding whether to grant you a loan. They will also take your 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 will have to pay.

Frequently of course all other things are not equal and prevailing interest rates in general, the present demand for loans, the overall economy and a host of other factors have a significant influence on whether lenders will lend and at what rate.

Another very important factor in the equation nowadays is the widespread use of computers which has altered the financial industry markedly over the past 20 years and provided consumers with much more fast access to products an services using the Internet.

Despite all these changes the FICO score remains a primary tool for the majority of lenders and, though it might 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.

Happily for those people who are having some financial problems there are choices and even if your FICO score is low you nevertheless have several options open to you. The first thing you need to do is to set get yourself a plan to improve your score.

As you slowly get rid of your outstanding overdue debts by paying them off or by negotiating with the creditor your score will slowly increase. And do not forget that the age of those 30 and 60 day past due and late payments is an element in working out your score.

At the same time as impoving your FICO score you can also look around for alternative lenders who are prepared to take a higher risk and lend you money. The difficulty of course is that such loans nearly always carry a higher rate of interest. If you are able to your best approach is to see if you can go without borrowing for a while while you work to improve your FICO score.

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