Why Should I Care If My FICO Score Goes Down?

The Fair Isaac Corporation is the creator of the FICO score. Your FICO score is usually what lenders refer to when they talk about your credit score. You have a different FICO score for each of the three main credit reporting bureaus. You should absolutely care if your FICO score goes down, because you will encounter problems when you apply for loans and credit cards

Identity Theft

As technology grows and advances, so do the tools of thieves. There were 5.4 million complaints to the Consumer Sentinel Network from 2005 to 2009; 721,418 of those complaints were identity theft-related, according to the Federal Trade Commission. Identity theft can occur anywhere, from entering your credit card information on a phishing website to using a fake credit card terminal. One way to quickly catch identity theft is by paying attention to your FICO score. If your score has dropped for seemingly no reason, you should examine why it has dropped. Someone may have applied to multiple credit cards or taken out loans in your name.

Loans

Your FICO score has an enormous impact on whether lenders approve you for a loan. A FICO score below 620 is considered sub-prime, according to Lendingtree.com. Lenders consider sub-prime scores indicative of high risk, which means your chances of obtaining a loan decrease. If you are approved for a loan with a low FICO score, your interest rates will be higher when compared to someone with a good or excellent FICO score.

Credit Cards

Credit card companies look at the FICO score of applicants before approving or denying them a credit card. Just like qualifying for a loan, anything below 620 is going to raise red flags for credit card companies. It basically says to the credit card company that you have made poor financial decisions in the past. Like with a loan, if you qualify for a credit card, it will almost certainly come with higher interest rates. The national average credit card interest rate is 16.88 percent as of Jan 31, 2011, according to indexcreditcards.com. A sub-prime FICO score will probably raise your interest rate three to five points higher than the average.

Hard to Build Back Up

Maintaining your FICO score is the opposite of maintaining your weight: letting it drop is a lot easier than building it back up. Since a low FICO score means qualifying for loans and credit cards will be more difficult, you'll likely have to use what you have at your disposal to increase your score. Making on-time payments is the best and fastest way to increase your score. Avoid applying for credit cards and loans, as the inquiry will have a negative impact on your FICO score.