What is FICO ?
Your FICO scores have a great impact on your credit worth. What is FICO and what affect does it have on your borrowing options?
The Fair Isaac Corporation was the creator of FICO and the acronym comes from the corporation’s name. The corporation developed a proprietary algorithm which rates your credit worth on a scale between 400 and 800 – the higher your number the better your credit worth. Other companies adopted this method with a few variations.
A clear explanation of how the algorithms calculate your credit worth has never been disclosed to the general public. However through cause and effect some have been able to deduct some factors that can affect your scores. It has been noted that your number of credit cards or the number of credit checks run can have a minimum affect your rating. However, late payments, especially payments received extremely late, have a much greater impact on your scores. Also, your overall debt amount is an important factor that has great impact.
A credit score of 720 or higher is excellent, whereas a score of 620 or lower is considered borderline. Any rating below 580 is a bad score. If your rating is between 620 and 720 a lender may feel that your credit worth is difficult to determine solely based on your FICO and will research other information to determine if you are a good credit risk.
Banks, mortgage companies, credit card issuers and other lenders will use your FICO score as a very important criteria for deciding whether to make a loan, and at what interest rate. Other things being equal the higher your score the better interest rate you can obtain.
Of course, many times all other things are not equal. Prevailing interest rates in general, the current demand for loans, the general economy and other factors have a heavy influence on the willingness of lenders to lend and at what rate.
The ever growing reliance on computers and modern technology in the finance world has changed the underwriting of loans dramatically. In addition, the Internet has greatly influenced the world of finance. These two variables have put a new face on the lending industry in recent years.
Despite all these changes, or possibly because of them, your FICO is a key factor considered by lenders. Though it is not the only thing considered, it carries a lot of weight in deciding whether or not you will be approved for a loan.
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Know how credit card reduction services can affect your credit score? There are some things you need to know before you use these services. Find out what you need to know on the Debt Smackdown website
