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

By Author: Donald Saunders
Total Articles: 84
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Many people are aware that they have a credit record which is compiled by several major credit bureau and one very important part of your credit record is your FICO score. So what exactly is your FICO score and how does it affect your borrowing decisions?

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

Despite the fact that the algorithms are a tightly held trade secret, over the years a lot of people have be able to word out many of the more important elements. For instance, 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 score is affected. The total amount of debt carried each month is yet another element. 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 as marginal and a score of less than 580 is decidedly poor. A score of 720 or more is very good to excellent. A score which comes in between 620 and 720 represents something of a gray area in which factors other than your your FICO score will play a more significant part in loan decisions.

Mortgage companies, banks, credit card companies and other lenders will use your FICO score as an extremely important factor in deciding whether or not to make a loan. These lenders will also take your score into account when setting the interest rate to charge you. Everything else being equal the greater your score the better the interest rate you will have to pay.

In many cases of course everything thing else is not equal and general interest rates, the overall demand for loans, the overall economy and other factors have a significant influence on whether or not lenders will lend and at what rate they will lend.

Yet another very important factor in the equation nowadays is the use of computers which has altered the financial industry greatly over the past 20 years and given consumers much more easy and fast access to services and products using the Internet.

Even with all these changes the FICO score is still a primary tool for lenders and, while it might not determine the final decision, it clearly influences the 'first cut' when lenders are faced with a stack of applications to either approve or disapprove.

Happily for those who are in some financial difficulty there are choices and even if your FICO score is not very high you nonetheless have several options. The first thing you ought to do is to set find a way to increase your credit score.

As you slowly get rid of your outstanding debts by paying them off or negotiating with the creditor your credit score will gradually increase. And bear in mind that the age of your 30 and 60 day past due and late payments is a factor in calculating your credit score.

While you are raising your credit score you can also look around for other lenders who are willing to take a higher risk by lending you money. The downside is those loans almost always carry a higher rate of interest. If possible your best course of action is to try to go without borrowing for a while while you work to increase your FICO score.