Exactly What Is Your FICO Score And How Does It Impact On Your Borrowing?

Many of us are aware that we have a credit record which is maintained by several major credit bureau and one 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 choices?

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

In spite of the fact that the details of the algorithms are a tightly held secret, over the decades many people have reverse engineered many of the important elements. For instance, any 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 score will be affected. Another factor is the total amount of debt which is carried each month. A not quite so important factor is the number of credit cards you have 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 less than 580 is decidedly poor. A FICO score of 720 or more is 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 part in any loan decisions.

Banks, mortgage companies, credit card companies and others will look at your FICO score as an extremely important element in deciding whether or not to make a loan. They 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 will be charged.

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

Another very important factor in the equation today is the use of computers which has changed the financial industry markedly over the past 20 years and also given consumers much more direct access to products an services through the World Wide Web.

Despite all these changes your FICO score remains a primary tool for most lenders and, although it may not be the determining factor in the final decision, it definitely influences the 'first cut' when faced with a stack of applications to either approve or disapprove.

Luckily for those people who are having some financial problems there are choices and even if your FICO score is not very high you nonetheless have several options open to you. The first thing you need to do is to set get yourself a plan to increase your score.

As you work to clear those overdue debts by paying them down or negotiating with your lender your score will gradually improve. And bear in mind that the age of those 30 and 60 day past due and late payments is an element in working out your score.

While you are improving your score though you can also shop around for lenders who are prepared to take a higher risk and lend you money. The difficulty of course is that those loans almost always carry a higher interest rate. If you are able to your best approach is to see if you can forego borrowing for a time while you work to improve your credit score.

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