THERE IS A WAY OUT

Is your debt spiraling out of control? Have you been harassed by creditors at all hours? Are you avoiding the problem because you don't know what to do? You are not alone. Many Americans just like you have fallen into the trap of easy credit and wound up in over their heads. Many simply burry their head in the sand and hope the problem goes away. But it never does. Creditors will come after everything you own. As a result, 95% of all bankruptcies are due to outstanding credit card debt.

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So, what is a Credit Score?

A credit score is a number that represents your calculated measure of credit risk. Your credit score is the result of a complex mathematical formula that takes into account numerous factors in your credit history. Put simply, your credit report is scored against millions of other people's credit reports, generating your consumer credit score. Your credit score is very important because it can determine your financial future. More specifically, your credit rating can affect whether or not you can obtain

* A mortgage
* A car loan
* A credit card
* A school loan

A company may also use your credit score to calculate the rate you get for a loan; the lower your consumer credit score, the higher the interest rate you'll be charged. So over time, a good credit score can save you lots of money. Companies look at your credit score report as a prediction of how likely you are to make your payments and make them on time.

In addition, potential employers may do a credit check for employment to determine whether you're financially responsible. And landlords often do a credit check for renters.

It’s important to know that you may get a different score than one pulled by a company who is checking your credit score, because the information in your credit file is constantly changing. The credit score you get this week may not be the same score a company would get from the credit reporting company the next week.

An increasing number of people who have seen friends, family or anyone else trying to use credit to run their finances and making a mess of it are now deciding that credit is not for them. In times of plenty, a credit card can be a convenience tool to make purchases at short notice, safe in the knowledge that the money to pay it off will be there when needed. In the present day, however, there is a lot less certainty about this and people are unwilling to take the risks attached to credit.

By making sure that you only use cash to make the purchases you need to make, you can guarantee that you only use money that is available here and now. It may not be as much fun sometimes, but it allows you to keep a close eye on your finances.

Spending money is fine, as long as there is money there to spend. Otherwise, it needs to be considered long and hard in the context of your situation. If you are making a purchase on a credit card, ask yourself if you can afford to make the payment that is required at the end of the month (or whenever your payment cycle places the due date). If it is a matter of making the purchase now and worrying about how you will pay for it later, it is really a good idea to refrain.

Think of it like this: credit cards make it easier to spend money, but that money is not technically yours. Spending money that you need to pay back, and not having the means to pay it back, is like trying to outrun a hungry lion. The credit card may act as a vehicle to escape the lion, but sooner or later you run out of fuel.

If “credit” was always called “debt” it is likely that fewer people would be as willing as many of us currently are to take large amounts of it. When we use a credit card, we are not using our own money, but actually borrowing from a bank to pay for something. Sometimes this is unavoidable, or at least the “best” option – in the case of medical treatment, for example, or unavoidable travel. As often as not, though, it is for something we want, not something we need.

Being credit aware is more important now than ever. Banks, who once were happy to give credit in the knowledge that they would get it back with interest, are now a great deal more careful in terms of who they give money to. Extending the terms of your credit may not be as easy an option now. It is wise to think before taking the plunge.

A friend would, in most cases, be willing to forego some of the money if you really couldn’t pay it back. They would understand your good intentions and would know that some day you would do them a favor for which they would be thankful. Banks do not – and cannot – operate in this way, as their business relies on being strict with how they control credit. They cannot afford to be your friend. So when you borrow money from a bank and cannot pay it back, suddenly you are on your own.

For this reason it makes sense to be very careful when borrowing from a bank. It really makes sense to be careful with any borrowing – no-one likes letting a friend down. But when banks are involved, being in debt can be a very lonely experience.

The scores are tallied into an overall score marking your credit history, and your worthiness for further credit. This is then consulted by any company or lender who wishes to appraise your application for credit. If you have a history of missing payments, then the low score you receive will make it less likely you can secure credit for a further purchase. A history of making payments on time and in full will make it more likely.

Of course, there are other things taken into account. Your monthly income is also important, as even people who are very responsible when it comes to making the payments expected of them will struggle when it comes to paying a monthly payment that makes up a significant portion of their monthly income. Over commitment is a major reason why people fall into serious debt, so pay attention to your commitments.

There are people who pay off their credit card balance in full when they receive their statement for the month, and in doing so build an excellent credit rating. By doing this they also avoid the dangers of interest and late payment fees, and keep the card clear for purchases which need to be made at short notice. It is entirely reasonable to use credit in this way, but the big risk is when you are making only the monthly payment each month on the balance of your card. Doing this, it will take forever to pay it off. If you are using credit to pay for continuing, necessary costs, then you are likely to run into problems somewhere along the way. Work out a budget and live by it – it may be tight, but you’ll never have to hide when the doorbell rings.

It will require you to make and stick to a budget. This may sound dull, but when you think about the alternatives – debt collectors generally do not tend to be particularly courteous people – it is something worth doing. When you have money paid to you at the end of the month, write down what you will need to spend. Food, rent or mortgage payments, transport and general housekeeping, as well as bills for electricity, telephone and other necessities – these are essential outgoings. What you have left over is disposable income.

By doing this monthly you will before long arrive at a point where you know automatically how much money you have. Treating yourself or others need not be a thing of the past. Indeed, without monthly credit repayments to meet, you will have more scope to do this. It is a more serene way to live.