by Nate Weeks

Created on: August 31, 2007   Last Updated: March 27, 2009

Bad credit is American as apple pie in these turbulent finacial times. One parent loses a job and the other is getting paid less for doing more and the bills aren't getting paid like they always used to be. Considering the mess our country is in, we all must consider what the credit ratings mean anyway. Credit ratings are determined by the companies that are going to loan you money or some product that is worth money. Credit ratings have different ranges depending on who is issuing them. The FICO credit score ranges between 300 and 850. The VantageScore score ranges from 501-990. Within both of these credit systems, 700 is a good place to be and more is even better.

A credit rating is what we receive when we borrow money from someone, usually through an institution like a bank, and pay or fail to pay the money back in the agreed upon time and under the agreed upon terms. Good credit ratings can be tweaked by using credit cards to buy purchases and then paying them back on time. Of course you might go into debt this way because tests have shown we are all more likely to buy more with a credit card than with cash or a debit card. Buying a home or a car can also increase our credit scores but, if you might not be able to pay the price (for example, your job is not secure), then maybe you should just save your money.

Credit ratings are also determined by how much we make. Even if you made a bunch last year but not so much this year, you'll likely receive credit on last years numbers. This can lead to trouble for some who haven't adjusted their lifestyles to a more realistic economic reality. Credit scores are determined by factors such as past repayment of credit and how much income is recorded. It is an assessment of whether, statistically, you will be likely to repay the debt that a creditor might lend to you.

Some financial advisers, such as Dave Ramsey, insists that placing too much emphasis on credit scores leads people to buy more than they can truly afford and to live in debt for the rest of their lives. He proposes that you instead save money by living a realistic lifestyle according to your income and paying off all of your debts, from lowest to highest. For the many who want to buy now, when prices and interest rates are low, this advice won't help you get what you want right not. Simple ways to boost your credit is make payments on time and not take out too much credit (which you determine by your income). Paying with cash will give you more in the long run because of no interest fees but credit is an alternative to many who don't have higher educations of skilled trade training.

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