You probably know what your credit score is. It’s that little three-digit number that follows you around like a puppy dog. It might be in the 600s, the 700s or even higher but gosh, does it really matter? And do you even know what it is?
How your credit score is calculated
The simple way to explain this is that your credit score is a numerical representation of your credit report. It’s based on a formula or algorithm that was originally developed by the Fair Isaac Corporation, which is now known just as FICO. There are three credit-reporting bureaus – Experian, TransUnion and Equifax. All three base your credit scores on your FICO score but each uses its own proprietary formula. This means you could have three different credit scores. As you might guess, the better your credit report, the higher a score you will have.
Why your credit score counts
The reason why your credit score is important is because it’s the first thing that any prospective lender will look at before either approving or disapproving your credit application. Credit scores range from 300 to 850. If you have a credit score of 800 or higher, you’re “golden” and should be able to get a mortgage, personal loan or just about any credit card you would want. Conversely, if you have a credit score of 500 or less, you will have a problem getting new credit as you will be seen by prospective lenders as more of a risk to not pay back the money you’ve borrowed. And if you can get new credit, it will probably have much higher interest rate.
Why you have a bad credit score
As I noted above, your credit score is a numerical representation of your credit report, which consists of entries from lenders that show how well you’ve paid your bills on time, how long your accounts have been open and other such information. The reasons why you might have a bad credit score could be that you have no credit history, that you were late in making payments or missed them altogether, you defaulted on a personal loan, filed for bankruptcy or had a home go into foreclosure.
What to do if your have a bad credit score
First, if you don’t know your credit score you need to learn it. The easiest way to do this is to go to www.myfico.com. You can get your score free if you’re willing to sign up for a two-week trial of its Score Watch program or if not, you can pay $19.95.
If you learn that you do have a bad credit score, there are some things you can do to improve it. If you have really bad credit you can get what is called a secured credit card. This is where you make a deposit to the company that issued the card and then “charge” on the card until it reaches a zero balance at which time you will need to deposit more money. There are a number of these cards available but make sure you check out what fees are involved before you sign up for one. Some of them can have very high fees.
Learn to think about credit differently
It’s important to remember that credit is not free money. It’s not even something you should use in case of an emergency unless you have no other alternative. The best answer is to not charge anything on a credit card unless you can pay it off the same month so you won’t be carrying a balance forward. You should also forgo any “splurges.” And this doesn’t mean just splurging on clothes, either. You could splurge on groceries or just by treating your friends with several rounds of drinks. In any case, splurging can get you in serious trouble.
Debt consolidation to the rescue
If you have a bad credit score because you’re so far in debt that it feels like you’ll never get out, we can help. Our debt relief providers offer a simple 100% satisfaction guarantee. If you are ever dissatisfied with our recommended debt relief programs, you can cancel out and pay no fees or penalties. We’re confident that we can help you become debt free in a reasonable amount of time and probably save you thousands of dollars to boot. Call our toll-free number or fill in the form you’ll find on this page to get more information. It could be the smartest thing you do this year.