Many people wonder what credit scores mean and why they are important.
In fact, your credit score is much more important than a simple number and has the power to impact all areas of your financial life.
Without a proper credit score, you may not be able to get a home loan, car loan, student loan, business loan, or personal loan.
The lack of loans can put you in a sticky situation and may be the culprit of your blocked dreams to own a home, start a business, or earn your degree.
Furthermore, just as your credit score has the power to affect all aspects of your financial life, your credit score is affected by all aspects of your financial life. Everything from how many credit cards you have in your name to how often you pay your utility bills on time is reported on your credit score.
For this reason, anyone should learn exactly what credit scores mean and their potential impact on any financial situation.
The first step in determining what credit scores mean is to take a long look at your own credit score. This is a number that is assigned to each and every individual by a financial institution.
Since anyone applying for a loan is considered to be a liability to the creditor, the credit score tells the financial institution the degree of liability. Individuals with good credit are capable of receiving loans and opening credit cards without trouble.
These individuals have provided themselves liable by paying their bills on time and using their credit responsibly.
Although the exact formula that is used to calculate the credit score is kept a secret, there are certain known factors that are taken into account in order to determine the specific number.
These factors include the number of credit cards that you have in your name, the balance of those credit cards, the number of late fees that you have accrued on all accounts from utilities to loans to credit cards, and even the number of times that you request your credit report.
The range of a credit score is between 300 and 850, with 850 being the highest possible score and the best possible credit.
Individuals with good credit typically have scores that fall between 660 and 850. The median credit score for the United States is around 725.
If you find yourself to have a low credit score, know that there are options available to begin the process of repairing your credit. The best way to restore your credit is to pay off all outstanding bills on time.
If your debt proves to be outstanding, you may want to look into the services of a debt consolidation service.
These services work to combine all of your debts into one loan on which you can pay regularly even until the entire debt is relieved.
Many individuals find that a debt consolidator is beneficial since the interest rates and fees may be lower than paying off individual credit cards or loans.