How to Get Out of Debt - Understanding Your Credit Score
When it comes to credit and finances, few things are more mysterious to most people than their credit score. Fact, most individuals have no idea what their credit score even is. While many of us may understand that are credit score has a very direct and profound effect on whether or not we qualify for loans or credit, what affects a credit score and what we can do to monitor it are important things that every individual should understand in order to get the most out of their finances.
A person's credit history is kept on file with three major credit reporting bureaus. These bureaus then convert a person's credit history into a score that companies and financial institutions use to determine whether or not they are a responsible consumer, that is low risk, or whether they are a high risk when it comes to offering them credit. Fortunately, every individual is entitled to one free report from each of the credit bureaus each year. This means that a person can get three complete credit reports each year in order to make monitoring their credit score and history a much easier task.
When it comes to credit scores, they are ranked numerically from 350 to 800. The closer that a person's credit score is to 800, the more responsible a consumer they are considered to be by lending institutions. The number of individuals with a score below 500, considered to be a very bad score, is very low. The vast majority of individuals fall somewhere between 550 and 750. A credit score of about 660 or higher is generally considered to be very good while a score of greater than 720 is excellent. Having a higher score means that it is easier for a person to get an auto loan, a mortgage, or even credit cards.
Of course, even an individual with a low credit score can often obtain credit cards and certain loans, but these will generally be at much higher interest rates than an individual with a higher score. Another reason that an individual should monitor their credit score is that it makes it possible for them to determine whether or not their identity has been stolen. Unscrupulous individuals who take advantage of someone else's identity often take out loans or credit cards in their name, racking up huge amounts of debt that can do a great deal of damage to the victims otherwise good credit history.