Grasping the FICO Credit Score Scale

Applying for loans has been a pretty simple process for much of the last 10 years. The current financial meltdown, of course, is changing things significantly. In many ways, we are returning to the fundamentals of lending and borrowing. Your credit score is one element of this.

It goes without saying that you want as good a credit score as you can get. The better your score, the better a bank will view your loan application. Why? Your credit score tells the story of your financial life including where you did things well and where you made mistakes.

Most lenders look at your credit report through a filter known as the FICO analysis. The FICO score is the creation of the Fair Isaacs Company who came up with the method for reducing a credit report to a financial figure. This is known as your FICO score and is a three figure number.

The lowest FICO score is not zero, a common misconception. Instead, it starts at 300 and rises to 850 as your credit improves. There are a number of designations as this rise occurs. Anyone with a FICO score of 619 or lower is considered to have poor credit. Borrowers with scores from 620 to 749 are considered from below average to above average as the borrower moves through the scoring range. 750 and up is considered excellent credit and banks are likely to grant any loan application so long as there is no other issue that arises such as insufficient income.

In the current financial market, banks are very risk adverse. This means anyone with a lower credit score is going to find borrowing money fairly difficult. What can you do? The first step is to figure out the problem areas of your credit report and deal with them. Even small changes can raise your credit score significantly. Still, you will not be able to deal with everything, so another step is needed.

Remember, your credit score is used by banks to evaluate risk. If you have a lower score, you are considered a bigger risk. One way to deal with this problem is to give the bank a reason to consider you less of a risk. The sure fire method is to put down a bigger down payment than is required. A larger down payment tells the bank you are serious about making the loan work out because you are highly unlikely to walk away from your own money if you put a significant amount down. Put 25 percent down or more and a bank will pretty much write whatever loan you need.

At the end of the day, your FICO score is very important when it comes to borrowing money. That being said, it is not the end all when a lender makes a decision on your application.