How FICO Score Affects Debt Consolidation
Your FICO score affects your debt consolidation plan. If your FICO credit score is low you might not qualified for a loan, or if you can get a consolidation loan you will end up with less favorable terms. Having less than perfect score may also mean that debt consolidation might not be a feasible solution for you.
Lenders evaluate your score to determine whether or not they will lend you money and the interest rate that they will charge you, if you qualify for a loan. As a small increase to the rate you are paying on a loan, compounded over 10 years, can add up to thousands of dollars of difference read on to learn more about how your FICO credit score affects your debt consolidation plan.
How Your FICO Score Works
FICO credit score is invented by Fair Isaac Corporation. The score is calculated with a complicated algorithm, based upon a variety of factors. These factors include how much credit you have available, how much you owe, what your payment history has been like, the length of your credit relationships, and any charge-offs or bankruptcies which appear on your account.
Your credit score can also be affected by recent inquiries on your credit, and if you have recently opened a credit account. This information is compared against every other American who has a credit history of any form, and everyone gets a credit rating. This score tells lenders how likely you are to pay back a loan.
Your FICO score ranges from 300 to 850 and most people's scores land between 600 and 850.
Credit scores affect us when we try to get a mortgage and in any area where we might end up owing someone money. For this reason, having a good credit score is a serious issue that all of us may have concerned at one time or another. Whenever we are faced with low credit scores we can take steps to improve them by intervening the above factors.
How and When to Get Your FICO Score
Before applying for a debt consolidation loan consider getting your score from one of the three major credit bureaus: Equifax, Experian, and TransUnion. Equifax, being the biggest of the three, may be a reporting agency where you want to start.
By law each bureau is required to give you a free copy of your credit report each year. The three major bureaus are fairly similar in what they record, so to protect yourself from identity theft try pulling a report from one of the three companies once every four months. Once you find out that the report is accurate you can then order your FICO credit score.
If possible, try to get your FICO score long before you want to apply for a loan. This will give you some ideas of what interest rate to expect, as well as give you an opportunity to dispute any errors on your report. Ideally, you will need at least six months for credit repair to improve FICO credit score before you consolidate your debt.
