What Is Your FICO Score And How Can It Impact On Your Ability To Borrow Money?

We all know that we have a credit record that is maintained by several major credit bureau and a particularly important element of your three bureau credit report is your FICO score. But what exactly is your FICO score and how does it influence your borrowing choices?

FICO is formed from the first letters of the Fair Isaac Corporation who developed this system of credit scoring and it is a number that is generally betwen 350 and 850 which ranks credit worthiness using the proprietary algorithm devised by the company, with 350 being the poorest score and 850 being the best.

Although the algorithms are a tightly guarded trade secret, over the decades many people have reverse engineered many of the more important elements. For instance, late payments will lower your score and the greater the number of late payments you have and the later they are the more heavily the score is lowered. The total amount of debt which you carry each month is yet another element. A not quite so important factor is the number of credit cards you hold and the number of credit checks undertaken out on your account.

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

Banks, mortgage companies, credit card companies and other lenders will look at your FICO score as an extremely important element in deciding whether or not to grant you a loan. These lenders 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 better the interest rate you will be charged.

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

Another very important factor in the equation today is the widespread use of computers which has altered the financial industry tremendously during the past 20 years and given consumers much more fast and simple access to products an services through the World Wide Web.

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

Luckily for those people who have financially slipped there are alternatives and even if your credit score is low you nevertheless will have several options. The first thing to do however is to get some free debt information and set get yourself a plan to increase your credit score.

As you slowly remove your outstanding overdue debts by paying them down or negotiating with the creditor your credit score will gradually rise. And remember that the age of those 30 and 60 day past due and late payments is a factor in working out your credit score.

At the same time as increasing your score you can also shop around for lenders who are prepared to take a higher risk and lend you money. The difficulty of course is these loans almost always carry a higher rate of interest. If possible your best approach is to try to go without borrowing for as long as possible while you work to improve your credit score.