Many people are aware that they have a credit report which is compiled by a number of major credit bureau and a very important element of your credit report is your FICO score. So what is your FICO score and how does it influence your borrowing choices? FICO is an acronym formed from the initial letters of the Fair Isaac Corporation who devised this method of credit scoring and is a number which is typically between 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. Though the details of the algorithms are a closely guarded secret, over the decades many people have reverse engineered several of the important factors. For instance, any late payments will reduce your score and the greater the number of late payments you have and the later they are the more heavily your score is affected. The overall amount of debt carried each month is another element. Another less important factor is the number of credit cards you have and the number of credit checks carried out out on your account. Any score under around 620 is considered to be marginal and a score less than 580 is decidedly poor. A score of 720 and above is considered to be very good to excellent. A score which comes in between 620 and 720 represents something of a gray area where items other than your simply your FICO score will play an important role in any loan decisions. Banks, mortgage lenders, credit card issuers and other lenders will use your FICO score as an extremely important element in deciding whether to make a loan. These lenders will also take your score into consideration when deciding what interest rate to charge you. Everything else being equal the higher your score the lower the interest rate you can obtain. In many cases of course all other things are not equal and general interest rates, the current demand for loans, the overall economy and a host of other factors have a significant influence on whether lenders will lend and at what rate. Another extremely important factor in the equation these days is the widespread use of computers which has changed the financial industry significantly over the past 20 years and provided consumers with much more direct access to products an services using the World Wide Web. Despite all these changes your FICO score remains a main tool for the majority of lenders and, although it might not determine the final decision, it most assuredly influences the 'first cut' when faced with a pile of loan applications to either approve or disapprove. Luckily for those who are having some financial problems there are choices and even if your credit score is not very high you nonetheless have several options. The first thing you ought to do is to set draw up a plan to increase your score. As you work to get rid of your overdue debts by paying them down or by negotiating with your lender your score will gradually improve. 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 score. At the same time as impoving your FICO score you can also look around for lenders prepared to take a higher risk by lending you money. The downside is that such loans nearly always carry an increased rate of interest. If you can your best approach is to try to forego borrowing for as long as possible while you work to improve your FICO score.
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