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The Importance of Credit Scores in Debt Management

[ 0 ] April 24, 2009 | admin

You can find a motherload of info online all about your credit scores. However, most of the information you can actually gather are sometimes vague and cannot be used as a good basis to understand what credit scores are and how important it is in debt management.

Credit scores are different from credit report contrary to the typical notion of most people. These two are entirely different and far from each other.

The credit score is based upon the credit report. Credit scoring is just a simplified method of identifying good credit risks from poor credit risks. You can bet that lenders will get a credit score before they proceed with the loan process but before a loan process goes very far, the lender will get full credit reports and from all three of the credit reporting agencies.

Your FICO or credit score is based on your prior credit history. Some of the things that determine a credit score include on time or late payments, as well as full or partial payment of purchases. Employment history and monthly or annual compensation is also used as a determinant. If you have a good credit history, chances are you will be provided with points you can use for other purposes.  If not, you should work learn how to repair your credit profile.

You might say that the credit score is a snapshot of a credit report -- a summation, if you will, that gives lenders a good idea of whether an applicant is a good or bad credit risk.

Some people believe that if they stay out of debt and pay in cash as they go, they will have a good credit score and a good credit report, but that is just wrong. They will have no credit history, no credit score, and no credit report. Without these things, you cannot establish to have a good credit report.  You should learn how to repair your credit profile.

The fastest (and least expensive way) of building credit history is to get a credit card, make charges, and then pay them off before any interest is added.You can get free stuff and rewards when you use a rewards credit card, just pay off the balance each month. 

But if have never had a credit card, get one with a $500 limit or less so you cannot get into too much trouble.  This way you won’t start off with a bad credit score and credit report.

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Category: Fix Credit Report

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