Nov
10
What Is Your Credit Score And How Can It Impact On Your Ability To Borrow Money?
Filed Under Credit Card Debt
Many people know that they have a credit report which is compiled by a number of major credit bureau and a particularly important part of your three bureau credit report is your FICO score. So just what is your FICO score and how does it affect your borrowing choices?
FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who created this system of credit scoring and it is a number that is usually betwen 350 and 850 that ranks credit worthiness according to a proprietary algorithm invented by the company, with 350 being the poorest score and 850 being the best.
Although the precise details of the algorithms are a tightly held trade secret, over the years many people have be able to word out several of the important factors. For instance, any late payments will reduce your score and the greater the number of late payments you have and the later these payments are the more heavily the score is affected. The total amount of debt carried each month is another factor. Another less important factor is the number of credit cards you hold and the number of credit checks carried out out on your account.
Any FICO score of below about 620 is considered marginal and a score under 580 is poor. A score of 720 and above is very good to excellent. A score that comes in between 620 and 720 represents a kind of gray area in which items other than merely your FICO score will play a more significant part in any loan decisions.
Mortgage lenders, banks, credit card issuers and others will use your FICO score as a very important factor in deciding whether or not to grant you a loan. These lenders will also take your score into consideration when deciding what interest rate to charge you. Everything else being equal the higher your score the lower the interest rate you will be charged.
In many cases of course everything thing else is not equal and general interest rates, the present demand for loans, the overall economy and other factors have a substantial influence on whether lenders will grant loans and at what rate.
Another extremely important factor in the equation today is the use of computers which has changed the financial industry tremendously during the past 20 years and also provided consumers with much more easy and fast access to products an services using the Internet.
Despite all these changes the FICO score is still a primary tool for most lenders and, while it might not be the determining factor in the final decision, it definitely influences the ‘first cut’ when lenders are presented with a pile of applications to either approve or disapprove.
Luckily for those who have financially slipped there are choices and even if your FICO score is low you nevertheless will have several options. The first thing to do is to get some debt support and set draw up a plan to improve your credit score.
As you work to get rid of those overdue debts by paying them off or negotiating with the creditor your credit score will slowly rise. And do not forget that the age of your 30 and 60 day past due and late payments is an element in working out your score.
At the same time as increasing your FICO score you can also look around for alternative lenders who are willing to take a higher risk by lending you money. The problem of course is these loans nearly always carry an increased rate of interest. If you are able to your best approach is to try to forego borrowing for as long as possible while you work to improve your credit score.
Mail this post
Comments
Leave a Reply
You must be logged in to post a comment.