How Your Credit Score Affects You

It can be easy to forget about credit reports and credit scores - until you get into trouble with debt. It's then that credit scores become a very obvious strain on life and your ability to get a loan or credit card. When consumers in trouble look to receive total debt help, they also must take an honest assessment of their financial situation and the potential damage they have done to their credit score. Fortunately, credit scores can be repaired and reputations can be rehabilitated. But it takes time and dedication to fix a credit score.

What is a credit score?

Every consumer has a credit score, which is a numerical assessment of a consumer's ability to take out and repay debt. The score, which is also called a FICO score, is a number ranging from 300 to 850. The higher the number, the better your credit. As a rule of thumb, a score of 700 or larger is considered "good" and will help a consumer receive preferable interest rates and loan programs. Consumers can check their credit scores for a small fee; it's recommended to review your credit report at least once a year to make sure it has no errors.

How a credit score can affect you

Your credit score is much more than a number that's used when you apply for a loan. Chances are, it's used several times a year to assess your financial capabilities and responsibility. In fact, credit scores were developed so lenders and other companies could easily share information about consumers. They are a tool used by banks and other financial institutions to rate consumers - it's in your best interest to have a good score. When consumers apply for auto insurance, for example, the premiums can be affected by their credit scores. Credit cards rates can fluctuate depending on your credit score, and the types of loans offered to you can vary greatly depending on how high your score is.

How to improve your credit score

If your credit score is below 700, fret not. It is possible to improve a credit score, but it requires time and discipline for it to occur. The most important thing to remember is that credit scores change frequently, and your behavior -responsible or not - will affect the score - for better or worse. Follow these steps to boost your score:

• Pay your bills on time: If you demonstrate responsibility in consistently paying your bills by the due date, your score will increase.
• Keep account balances low: Don't rack up high balances on your credit cards. FICO scores generally prefer it if consumers carry balances of 30 percent or less of their available credit. For example, if you have a credit card with a $10,000 limit, do your best to make sure the balance is never above $3,000.
• Open accounts only as necessary: Resist the temptation from credit card companies and department stores. Opening multiple accounts - and then closing them haphazardly - is a sign that you might not be a dependable consumer. It might sound boring, but keeping the same accounts open for years and years is the wisest strategy.
• Check your credit report annually: At least once a year, look at your credit report and review it carefully. If you spot mistakes, notify the credit bureau and the creditor immediately. The error could be negatively affecting your credit score.

Now that you are ready to consider debt consolidation, find out how it works in greater detail.