FICO Score Ratings

Raising FICO Score By Understanding FICO Score Ratings

FICO score ratings are dependent on a proprietary algorithm invented by the Fair Isaac Corporation (FICO).

The three major credit reporting agencies use the complex calculation to develop your credit score and thereby rank your credit worthiness.

There are lesser-known variations of the score used by other companies, but they cannot use the name "FICO" to describe their product.

Due to the ownership rights and complexity involved, it is not possible to calculate your FICO score on your own, nor are there any online calculators available to determine your score. Any site promising a "FICO score calculator" or a "free online FICO score" is blatantly misleading you, pure and simple, so save your time and money.

You can, however, raise your FICO score and directly affect your debt management options. Here's how:

What Influences FICO Score Ratings?

It is difficult to know what influences FICO score ratings as Fair Isaac Corporation's algorithms remain guarded trade secrets; however, over the years some of the deciding factors have been reverse engineered by clever people. Here is what we do know:

Your payment history lends a major influence. How you have handled your credit card accounts, instalment loans, mortgages and retail accounts determines your ability to pay on time and how much money you have past due.

Your score will be lowered by any late payments. The more late payments you have and the later those payments are, the greater your score is affected.

The sum total of your outstanding monthly debt is another significant factor. The number of accounts you have and the maximum credit lenders are willing to extend to you is also considered.

The length of your credit history can be a factor. The longer your accounts have been open with lenders, the easier it is to determine your payment patterns.

The types of credit you have and how many credit checks you've recently requested are also factors, but of lesser importance.

What Is FICO Score?

Your FICO score is a number between 400 and 800, with 400 representing the worst and 800 representing the highest credit score that can be obtained.

Any score below 580 is considered decidedly poor while those between 580 and 620 are judged marginal.

A score between 620 and 720 falls within a favorable yet borderline area, where other aspects of your financial history will play a larger role in determining lender decisions than your FICO. The nation's average credit score is often around the two-thirds mark of this point range, about 675, and any score above this is considered good.

Scores above 720 are looked upon as being very good to excellent.

FICO Score Ratings Scale

Understanding FICO Score

Commercial lenders such as credit card companies, mortgage companies, banks, and other kinds of lending companies use FICO scores as the criteria for determining whether to grant a loan and to decide the rate of interest. The higher the score the better the interest rate that is granted.

However, other factors can often have a strong influence the readiness of lenders to lend money and the interest rates charged, such as the overall economy, the current loan demand, and the prevailing interest rates.

As well, there have been at least two notable changes in the lending industry during the past twenty years or so. Underwriting loans is a very different process today because of modern financial techniques and the continuing increase in the use of personal computers. And it's no great surprise that the Internet has brought a different modus operandi to the world of finance.

Despite all the changes, though, or partially because of them, FICO score calculation is still a primary tool for money lenders. FICO might not be the final deciding factor in a lending decision, but it will definitely influence lenders faced with a large pile of applications to decide which ones they should consider or reject. Those applications with the higher FICO scores will most likely be the ones receiving further consideration.

Raising FICO Score

Fortunately, there are steps you can take if you have slipped financially and have a low FICO. First, you must implement a plan to raise FICO score.

By working to remove any outstanding overdue debts by gradually paying them off, or by negotiating a better deal with the lenders, you can gradually raise your credit score. The age of late payments (for example, 30, 60, or 120 days past due) is a significant factor in FICO score ratings.

While waiting for your score to improve, you can shop around to see whether there are alternate lenders who might be willing to accept a higher risk. However, high-risk loans often carry higher rates of interest, so be careful.

Your best option is to do all you can to improve your debt situation and put off borrowing money for as long as possible. Also, avoid late payments like the plague. Pay all your bills on time or before they are due. As your debt situation improves, so will your FICO score.

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