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What is a Credit Score?

Your credit score is a grade just like you got back in high school. It is a way for people who do not know you, your debt amount, your ability to repay a loan, or any other details about your financial health to gauge your creditworthiness. It tells them through one simple number, how likely you are to repay them on time. Bad credit scores definately affect your debt problem, they can make it worse and also harder to get out of debt without drastic measures like debt settlement or bankruptcy.

Sound unfair?

True, it’s hard to judge a person solely on a single number spit out by a computer but it has become the standard. Typically the numbers do not lie since they are determined by your past track record. If you pay your bills on time, your score will be fine, if not, your score suffers and so does your ability to rent an apartment, get a car loan, etc.

Even more importantly is that your interest rates will be higher, the lower your credit score is. Why? Because the people who are loaning you the money will view a low credit score as a big risk and if they are going to take that risk, they want to get paid more for it in terms of higher interest rates that they will charge you.

The downside in using a single number to judge a persons liklihood to repay a loan, is special unfortunate circumstances that causes some people to fall way behind on their bills and their credit score suffers despite their prior good record. A medical illness, for example, can result in huge bills very quickly. The bills can be way above someone’s ability to pay them back so the debt piles up and the late (or non-existant) payments begin.

A bad situation gets worse. In these circumstances, drastic times often require drastic measures and the debt relief solutions people often turn to are debt settlement or, in a really bad situation, bankruptcy.