A FICO score is a simplified numeric representation of a person’s credit evaluation. In other words, this company takes in to account several different factors including:
- Payment history
- Amount of debt owed
- Age of credit history
- New credit applied for
- Types of credit
The idea behind the report is to provide an unbiased quick glimpse of every person’s reliability in paying back creditors. It is evaluated the same for every person and is represented by a number between 300 and 850. Basically, they look at the above factors and determine the score based on those aspects in order to make the lending process much simpler and faster. This way, the majority of information is already gathered and the applications can be shorter. The applicant will not have to gather as much information or answer as many questions.
How much power does the FICO score have?
For most lenders, this is not the only factor considered. They will look at every person as an individual and consider other points as well. The FICO score is a good starting point, but there are other elements that can mitigate the risk involved in lending to a person with a lower score. Lenders will look at your debt to income ratio to see how much more debt you can handle given how much money you make. They will also look at how long you have held your current job. This shows responsibility on your part as well as the likelihood or not that you will keep your source of income and be able to pay back the loan.
Having a low credit score will not ruin your chance of borrowing money, and it is not permanently damaging. While it does hold some influence, the number can and does change. In fact, many loan granting agencies will work with you to help you to improve your credit score so that you can get a loan. For example, if the bank you are trying to work with to get a loan has a policy of not lending to people with a FICO score below a certain amount, and your score falls below that amount, then they will likely look at your score with you and offer advice on how to improve it. They work with these scores frequently and will know certain ways to improve your score quickly.
How can a FICO Score be improved?
Because of the fact that the age of the history is a factor, it does take some time to repair a bad credit score in some cases, but don’t be discouraged! You can start to make improvements today and build your reputation. One major way to improve your score is to simply take a detailed look at your report. There are often mistakes or errors and in some cases, identity theft. If you correct these things you will see a jump in your score. Paying back your current debt is another way to improve your score, as well as your way of life. So, have a look at your FICO score today and see what a good starting point would be to improve your report.
