When it comes to credit, a lot of people find themselves in hot water. This may be due in part to the fact that many people simply do not understand how credit works and how having “bad credit” can affect their financial well-being. Knowing a few simple facts about credit may help you avoid financial trouble.
If you have ever had to take out a loan or borrow money (perhaps a car loan, personal loan, mortgage or credit card) you may know that the lending industry uses credit histories and credit scores to determine whether or not you are eligible to do so.
Your credit history – basically a record of whether or not you’ve paid your bills in the past – will help lenders decide if you are likely to pay them back on time. By assessing your credit history, they are essentially determining your “credit risk level” as a consumer. But why is this important and why should you care?
The answer is simple. Your credit history determines how much credit is made available to you and under what terms. If you have a poor credit history, the likelihood of receiving credit with a higher interest rate is greater. High interest rates may hinder your ability to repay the money you owe, and further entangle you in the cycle of debt.
And it’s not just banks and credit card issuers that consider your credit history. Consumer credit report information is used in assessing applications for services, housing and even employment.
If you are unsure of how your credit history measures up, there is some good news. You have the ability to request a free credit report. Under laws outlined in the Fair Credit Reporting Act, credit bureaus must provide consumers with a free copy of the borrower’s credit report once every 12 months.
Making informed decisions regarding your credit may help you avoid financial difficulties in the future. Still, people find themselves struggling with debt for a number of reasons, many of which are out of their control to fix. If you feel that you are overwhelmed by the burden of debt, bankruptcy may be an appropriate step to lead you to a fresh financial start.
Source: Creditcards.com, “10 things you must know about credit reports and credit scores,” Jeremy M. Simon.
To learn more about strategies for managing out-of-control debt, please visit our bankruptcy page.
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