Debt Information

Most of us are aware that we have a credit record which is maintained by several major credit bureau and a particularly important part of your three bureau credit report is your FICO score. But just what is your FICO score and how can it influence your debt management decisions?

FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who came up with this method of credit scoring and it is a number that is usually betwen 350 and 850 that ranks your credit worthiness using the proprietary algorithm formulated by the company, with 350 being the worst score and 850 being the best.

In spite of the fact that the precise details of the algorithms are a closely held trade secret, over the years many people have be able to word out many of the important elements. For instance, late payments will lower your score and the more late payments you have and the later those payments are the more heavily your credit score is reduced. The overall amount of debt which you carry each month is another element. Another less important factor is the number of credit cards you have and the number of credit checks performed out on your account.

Any score of under about 620 is considered as marginal and a score of under 580 is 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 your FICO score will play an important role in any loan decisions.

Banks, mortgage companies, credit card issuers and others will look at your FICO score as an extremely important element in deciding whether or not to grant you a loan. Lenders will also take your FICO score into account when setting the interest rate to charge you. Everything else being equal the higher your score the better the interest rate you will be charged.

In many cases of course all other things are not equal and general interest rates, the current demand for loans, the overall economy and other factors will have a heavy influence on whether lenders will lend and at what rate they will lend.

Yet another extremely important factor in the equation now is the widespread use of computers which has changed the financial industry tremendously during the past 20 years and also given consumers much more easy and fast access to services and products using the Internet.

Despite all these changes your FICO score remains a primary tool for the majority of lenders and, though it may not determine the final decision, it most assuredly influences the ‘first cut’ when faced with a stack of loan applications approve or disapprove.

Fortunately for those people who are having some financial problems there are choices and even if your FICO score is not very high you nevertheless have several options. The first thing to do however is to get some free debt information and set devise a plan to increase your credit score.

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

While you are improving your score you can also shop around for other lenders who are prepared to take a higher risk by lending you money. The downside is those loans nearly always carry an increased interest rate. If you can your best course of action is to see if you can forego borrowing for a time while you work to improve your credit score.

Tags: Credit Cards, Loans //