What Is Your Credit Score And Exactly How Can It Affect Your Ability To Borrow Money?

Most of us know that we have a credit record which is compiled by several major credit bureau and one particularly important part of your credit record is your FICO score. So just what is your FICO score and how can it affect your borrowing decisions?

FICO is formed from the first letters of the Fair Isaac Corporation who came up with this method of credit scoring and it is a number which is usually between 350 and 850 which ranks credit worthiness using the proprietary algorithm devised by the company, with 350 being the worst score and 850 being the best.

Although the algorithms are a tightly guarded trade secret, over the years many people have reverse engineered several of the more important elements. For example, late payments will reduce your score and the more late payments you have and the later they are the more heavily the credit score will be reduced. Another factor is the overall amount of debt which is carried each month. Another not quite so important factor is the number of credit cards you have and the number of credit checks undertaken out on your account.

Any score of under approximately 620 is considered marginal and a score of below 580 is decidedly poor. A score of 720 or more is considered to be very good to excellent. A score which comes in between 620 and 720 represents a kind of gray area in which factors other than your merely your FICO score will play an important part in lending decisions.

Mortgage companies, banks, credit card companies and others will look at your FICO score as a very important element in deciding whether or not to make a loan. They will also take your score into consideration when setting the interest rate to charge you. Other things being equal the greater your score the better the interest rate you will be charged.

Often of course everything thing else is not equal and general interest rates, the overall demand for loans, the general economy and other factors will have a heavy influence on whether or not lenders will lend and at what rate they will lend.

Yet another extremely important factor these days is the widespread use of computers which has changed the financial industry markedly during the past 20 years and given consumers much more direct access to services and products through the Internet.

Despite all these changes the FICO score is still a primary tool for the majority of lenders and, while it might not be the determining factor in the final decision, it clearly influences the 'first cut' when lenders are presented with a stack of loan applications to either approve or disapprove.

Happily for those people who are in some financial difficulty there are alternatives and even if your FICO score is low you nonetheless will have several options. The first thing you need to do is to set find a way to improve your score.

As you slowly get rid of those outstanding overdue debts by paying them off or negotiating with the creditor your score will gradually increase. And bear in mind that the age of those 30 and 60 day past due and late payments is an element in coming up with your score.

While you are improving your score though you can also shop around for other lenders willing to take a higher risk by lending you money. The downside 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 as long as possible while you work to raise your FICO score.

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