Precisely What Is Your Credit Score And Just How Does It Affect Your Ability To Borrow Money?

Many people know that they have a credit report that is maintained by several major credit bureau and one particularly important part of your credit report is your FICO score. But what is your FICO score and how does it influence your debt management decisions?

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

Although the details of the algorithms are a tightly held secret, over the years many people have be able to word out several of the more 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 credit score will be lowered. Another element is the overall amount of debt that you carry each month. Another less important factor is the number of credit cards you hold and the number of credit checks undertaken out on your account.

Any score less than around 620 is considered marginal and a score below 580 is poor. A score of 720 or more is very good to excellent. A score that comes in between 620 and 720 represents a kind of gray area where items other than your your FICO score will play an important role in any lending decisions.

Banks, mortgage lenders, credit card companies and others will look at 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 setting the interest rate to charge you. All other things being equal the greater your score the better the interest rate you can obtain.

A lot of the time of course everything thing else is not equal and prevailing interest rates in general, the present demand for loans, the overall economy and other factors will have a significant influence on whether lenders will grant loans and at what rate.

Yet another very important factor these days is the widespread use of computers which has changed the financial industry markedly over the past 20 years and given consumers much more fast and simple access to services and products using the World Wide Web.

Despite all these changes the FICO score remains a main tool for lenders and, though it may not determine the final decision, it certainly influences the 'first cut' when lenders are presented with a stack of loan applications to either approve or disapprove.

Luckily for those who are in some financial difficulty there are choices and even if your FICO score is low you nonetheless will have several options. The first thing you ought to do however is to set devise a plan to raise your FICO score.

As you slowly get rid of your outstanding overdue debts by paying them off or negotiating with the lender your FICO score will gradually improve. And bear in mind that the age of those 30 and 60 day past due and late payments is a consideration in calculating your FICO score.

While you are raising your credit score you can also look around for lenders willing to take a higher risk and lend you money. The difficulty of course is those loans almost always carry an increased rate of interest. If you are able to your best course of action is to see if you can forego borrowing for a while while you work to raise your FICO score.

Article Source: http://www.articlemonk.com

TheDebtAssistanceCenter.com provides information on a range of topics including personal bankruptcy and exists to provide help with debt problems for borrowers.

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