Many of us know that we have a credit record which is kept by a number of major credit bureau and a particularly important element of your three bureau credit report is your FICO score. But what exactly is your FICO score and how can it influence your debt management decisions?

FICO is an acronym formed from the first letters of the Fair Isaac Corporation who devised this method of credit scoring and is a number that is usually betwen 350 and 850 which ranks credit worthiness according to the proprietary algorithm invented by the company, with 350 being the worst score and 850 being the best.

Though the precise details of the algorithms are a closely guarded secret, over the years a lot of people have reverse engineered several of the important elements. For example, late payments will reduce your score and the more late payments you have and the later they are the more heavily your score will be lowered. Another element is the total amount of debt that is carried each month. A not quite so important factor is the number of credit cards you have and the number of credit checks undertaken out on your account.

Any score below around 620 is considered as marginal and a score below 580 is poor. A FICO score of 720 and above is considered to be very good to excellent. A score which comes in between 620 and 720 represents something of a gray area in which items other than simply your FICO score will play a more significant part in lending decisions.

Banks, mortgage lenders, credit card issuers and other lenders will look at your FICO score as an extremely important factor in deciding whether to grant you a loan. These lenders will also take your FICO score into consideration when deciding what interest rate to charge you. Other things being equal the greater your score the better the interest rate you will have to pay.

A lot of the time of course all other things are not equal and general interest rates, the current demand for loans, the general economy and other factors will have a substantial influence on whether lenders will grant loans and at what rate they will lend.

Another very important factor these days is the use of computers which has changed the financial industry tremendously over the past 20 years and given consumers much more direct access to services and products through the World Wide Web.

Despite all these changes your FICO score is still a main tool for lenders and, although it might not be the determining factor in the final decision, it clearly influences the ‘first cut’ when presented with a stack of applications to either approve or disapprove.

Fortunately for those who are in some financial difficulty there are alternatives and even if your credit score is low you nevertheless have several options. The first thing you ought to do is to get some free debt information and set establish a plan to raise your score.

As you gradually remove those outstanding debts by paying them off or by negotiating with your lender your score will slowly improve. And bear in mind that the age of your 30 and 60 day past due and late payments is a factor in coming up with your score.

While you are improving your score though you can also look around for alternative lenders willing to take a higher risk and lend you money. The downside is that such loans nearly always carry a higher interest rate. If you are able to your best course of action is to see if you can forego borrowing for as long as possible while you work to raise your credit score.