How a FICO Score Affect Debt Consolidation

With a low FICO score, you might not be able to get a loan. Or, with a low FICO credit score you might get a debt consolidation loan but you will end up with a higher interest rate. This means that consolidating debt might not be a feasible debt relief for you.

So, if you think that your credit score is not important for debt consolidation, think again! This three-digit number determine whether or not you can get a loan, and the interest rate your lender will charge you if you qualify for a loan. Remember, a small increase to the interest rate you are paying on a loan, compounded over 10 years, can add up to thousands of dollars of difference.

How 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 800 and most people's scores land between 600 and 800.

Your credit score affects you when you sign up for a cell phone plan, or when you try to get a mortgage. It also affects you if you are applying for a job that deals with money or sensitive information, and in any area where you might end up owing someone money, such as renting an apartment.

Where to Get Your FICO Score

You can find out your credit score for free from one of the three credit bureaus: Equifax, Experian, and TransUnion. Equifax, being the biggest of the three, may be a credit 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 3 bureaus are fairly similar in what they record, so you can try pulling a report from one of the three companies once every four months, which allows you to keep an eye on your credit report and protect yourself from identity theft without having to pay for copies.

So it is important that you 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 month to improve your credit score before you consolidate your debt.

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