What Is Your FICO Score And Precisely How Can It Affect Your Borrowing?

Many of us know that we have a credit report that is compiled by several major credit bureau and a particularly important part of your three bureau credit report is your FICO score. But what is your FICO score and just does it influence your debt management choices?

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

In spite of the fact that the algorithms are a tightly guarded secret, over the decades many people have reverse engineered many of the important factors. For instance, any late payments will lower your score and the more late payments you have and the later those payments are the more heavily your score will be affected. The total amount of debt which you carry each month is yet another factor. A not quite so important factor is the number of credit cards you hold and the number of credit checks performed out on your account.

Any FICO score under approximately 620 is considered as marginal and a score under 580 is decidedly poor. A FICO score of 720 and above is very good to excellent. A score that comes in between 620 and 720 represents something of a gray area in which items other than simply your FICO score will play an important part in lending decisions.

Banks, mortgage companies, credit card issuers and others will look at your FICO score as a very important factor in deciding whether or not to grant you a loan. These lenders will also take your FICO score into account when deciding what interest rate to charge you. Other things being equal the greater your score the lower the interest rate you can obtain.

Frequently of course all other things are not equal and prevailing interest rates in general, the overall demand for loans, the general economy and other factors will have a significant influence on whether or not lenders will grant loans and at what rate they will lend.

Another very important factor in the equation today is the widespread use of computers which has changed the financial industry markedly during the past 20 years and also given consumers much more fast access to products an services using the Internet.

In spite of all these changes the FICO score is still a main tool for lenders and, although it might not determine the final decision, it clearly influences the 'first cut' when lenders are presented with a pile of applications to either approve or disapprove.

Fortunately for those who are having some financial problems there are alternatives and even if your FICO score is not very high you nonetheless will have a number of options. The first thing you ought to do is to get some debt assistance and set establish a plan to increase your score.

As you work to clear your outstanding overdue debts by paying them down or negotiating with the lender your credit score will slowly increase. And do not forget that the age of your 30 and 60 day past due and late payments is a factor in coming up with your credit score.

While you are improving your credit score you can also shop around for lenders who are prepared to take a higher risk by lending you money. The problem of course is those loans almost always carry a higher rate of interest. If possible your best approach is to see if you can go without borrowing for as long as possible while you work to raise your FICO score.