Having a bad credit score can hurt you in every area of your life – not just in the ability to take out loans.

Employers in many circumstances can run credit checks, and a bad credit score might be the deciding factor in giving the job you applied for, to an equally well-qualified candidate with a better credit score.

If you want to rent a home, or a car, or even buy a new cell phone – you guessed it – a bad credit score can hurt you.

So what kinds of things will hurt your credit score?

Maxing out your credit cards – try very, very hard not to borrow or charge more than 50 percent of the amount that you are allowed to borrow. If you go above that, it will hurt your credit score. Do not charge your cards to the limit.

Late payments – late payments are devastating to your credit. Payment history makes up about 35 percent of your credit score. To make sure that you don’t skip a payment, go on autopilot – arrange to have all of your payments withdrawn automatically form your bank account. That way you will never have to worry that the check is in the mail.

Applying for a bunch of credit cards or for any loans.

Closing down old credit card accounts. Lenders want to see a long payment history. The longer that you have had a credit card account open and have made on-time payments, the more this helps your credit score.

Having a tax lien placed against you

Declaring Bankruptcy

So what is a good credit score?

Anything above 700 is considered excellent.

600 to 690s – okay, but not ideal. These days, with tightening credit standards – may not be enough to get you approved for a house, and certainly not for the best rates.

Below 600 – you’re considered a high credit risk.

Below 550 – really, really bad.

If you are in debt and concerned about paying it off, you’re probably aware that too much debt, late payments, or worse, missed payments, can negatively effect your credit score.

But what is a credit score? And how can you find out what yours is?

Fair Isaac Corporation was founded in the 1950s by an engineer named Bill Fair and a mathematician named Earl Isaac, to create a credit scoring system. They built their first credit scoring system in 1956.

As the years went on the Fair Isaac Corporation developed ever more sophisticated credit scoring systems and software to predict people’s credit-worthiness.

The more likely it is that someone will default on a loan, the higher their interest rates will be.

So now, when a lending institution is considering whether to give someone a loan, they generally go to one of three major credit reporting agencies to get that person’s credit score before deciding whether to give them a loan at all – and deciding what that interest rate will be.

The three agencies are Equifax, Transunion, & Experian. Where does Fico come in? All of these agencies use FICO software information to determine your credit score, ranging from 300 to 850, with most Americans falling in the 600s to 700s. These days, with tightening credit standards, a credit score in the 700s is often necessary to get a mortgage loan, especially one with a good rate.

Here are the factors that FICO takes into account when calculating your credit score:

Payment history: 35 percent – Don’t pay late!
Amounts Owed: 30 Percent – Don’t borrow too much in proportion to your credit history!
Length of Credit History: Older credit cards with regular on-time payments help build good credit
New Credit: Number of recent accounts opened, number of recent credit inquiries – applying for a lot of loans at the same time hurts your credit
Types of Credit Used: Credit cards, retail store accounts, installment loans, mortgage loan, etc.

You can look at your credit report for free by going to www.annualcreditreport.com and requesting it. They are obligated to provide you with one free copy of your credit report every 12 months. They are the only site authorized by the Federal Government to provide this service.

The Federal Trade Commission recommends that you link to them directly from their site http://www.ftc.gov/freereports to make sure that you are going to the official site. To see your credit score – not your credit report – you must purchase it, from one of the three credit reporting agencies, Equifax, Experian, or Transunion.

When you’ve got numerous bills and you need to pay down debt, it can be challenging figuring out which bills to tackle first.

In fact, for many people it is so overwhelming that they put it off completely, making late payments – which  trash their credit – or try to please everyone by writing a bunch of checks that end up bouncing – and none of this ends up being productive.

However, if you look at the process logically, it becomes very easy to see what order you should choose to pay off your bills.

First of all, and most importantly:

You need to pay your rent/mortgage, utilities, grocery bills, and car payments. Income tax is also a priority because if you have a tax lien taken out against you, this is something that can devastate your credit rating for many years to come.

You need to set aside at least SOME money for savings – even if it’s only $50 a month.

Beyond that – you need to make a list of all the debts that you have and find out the interest rate on each debt.

Paying the minimum that you owe is a disaster. If you can afford to pay more than the minimum on all of these debts, more power to you.

However, if you can’t afford to do that, you need to pick the debt – probably a credit card debt – with the highest interest rate, and make it your goal to pay off that debt first.

So put some extra money towards that payment every month, until that debt is paid off.

If all that you can afford to pay is the minimum on the other debts, so be it.

When you need to pay down debt and you are focusing on one credit card instead of your giant mountain of bills, you will be surprised and pleased at how quickly you see the balance on that credit card shrink.

You will find yourself setting aside money to put towards that bill…paying close attention every month to how much you owe, not hiding from it…and you will be thrilled when that bill is finally paid off.

And then you will move the next high interest bill to the top of the list, and you will do this one by one until you are free of high interest bills.

Yes, this may take a couple of years to accomplish, but this way there is an end in sight and you will no longer feel so trapped and hopeless.

When you want to lose weight, you go on a diet.

When you need to trim fat from your budget, you need to do the same thing – go on a money diet.

The trick in stretching your budget lies in ‘trimming the fat.’ Recent surveys say the average debt per American household runs over $7,000, and we won’t see any debt relief until we are willing to make some significant adjustments on our spending habits.

First, you have to decide which expenses are your absolute priorities. You need to budget for necessities like groceries, rent or mortgage, utility bills, and making payments towards paying down credit cards. Pay extra if you can towards the credit card with the highest interest rate; if you can only afford to pay the minimum to the credit cards with the lower interest rates, do that.

You must now decide what is the “fat” in your budget. If you owe more than you can pay off every month, frankly, anything that is not a necessity is “fat”.

Gas-guzzling cars, boats, RVs and other expensive toys are “fat”.

Look to trim expenses everywhere that you can.

If you’ve been spending money on video game consoles and online games, maybe it’s time to snap out of the virtual world and, well, get real.

If you’ve been going to an expensive salon – find a cheaper hairdresser until you get your debts paid off.

When you’re on a diet you would substitute fattening food like ice cream with healthy food like yogurt.

When you’re on a money diet you need to find less expensive alternatives to all of life’s luxuries.

Buy generic groceries at the store instead of name brand groceries, and buy designer clothing at consignment stores where they’re cheaper. And do you really need to get most of your clothes dry cleaned?

Cut back on your designer or gourmet coffee habit. Buy generic brands at the grocery store.

Instead of a night at the movies, try matinee, which is cheaper. And do you really need cable TV and pay-per-view?

Go to the museum on their free nights.

Remember, developing a healthier consumer habit takes practice. Once you get in the habit though, you will find that even when you’ve paid your debt down, you are very likely to maintain healthier money habits in the future.

One of the biggest mistakes that you can make when planning a budget is to only budget for the bare essentials – rent, mortgage, electricity, groceries, car payment, insurance, etc.

Why?

Because you’re not going to stick to a budget like that forever, any more than you are going to stick to a diet of cottage cheese, lettuce and grapefruit forever.

So here is what you are going to do.

First, make a list of ALL the luxuries that you regularly spend money on. Be honest with yourself; look through your credit/debit card purchases from the past few months if you need to job your memory.

Some categories might be:

Beauty salon
Restaurants
Museum visits
Cable TV
Movies
Birthday/Xmas Gifts
Vacation
Clothing purchases
Children’s Toys
Lunch with co-workers
Gym membership
Videogames

This isn’t an exercise in self-torture; I’m not here to force you to look over all of the things that you are giving up.

Here’s what you do now: For every luxury that you love and can’t afford, list a low-cost or no cost alternative.

This actually gets quite fun once you get get going. After all, you are planning out how to do things that you love.

Some examples are:

Beauty salon – either switch to a cheaper salon, or check out local beauty school. They offer VERY low cost services, including haircuts, color, and manicures and pedicures done by their students on specific days. The students are generally operating under the supervision of a teacher. And visit the salon less often. Add a couple of weeks in between your usual visit time.

Museum Visits: Go on free nights.

Gifts: Keep a gift drawer. Scout out really good sales and buy things when they are at a very low price, even months ahead. You’ll never be scrambling at the last minute that way, which tends to lead to paying more than necessary. If money is really tight, make handwritten gift certificates for family members, redeemable for one “get out of chores free” night, one hour of one-on-one time with mom or dad doing whatever the child choses (within reason of course), etc.

Clothes: Consignment stores, thrift stores, and end-of-season sales.

Toys: Children’s consignment stores.

Movies: Matinees, or movie nights at home with the family. Make an event of it; make popcorn, buy a big box of candy (which will cost a tiny fraction of what it would cost at the movie theater.

Gym Membership: Quit the gym if you can’t afford it. Form a walking group with people from work, and walk 20 minutes or more of your lunch hour. Take the stairs at work. Bicycle with friends on weekends. Take the dogs on long walks.

If you’re drowning in debt, the temptation may be just to throw up your hands, walk away from it all, and declare bankruptcy.

That is TRULY only a last resort, for numerous reasons.

One of those reasons is that it’s not that easy to start over with a clean slate any more. An onerous law called the Bankruptcy Abuse Prevention And Consumer Protection Act of 2005 makes it very, very difficult for consumers to discharge their debts.

It forces debtors into a debt repayment plan that runs for up to five years and barely allows consumers to keep a living wage during this period, in which the debtor must pay the vast majority of their disposable income towards a debt plan they have little control over.

Bankruptcy also remains on one’s credit report for up to 10 years, AND if an employer or mortgage or auto loan company asks if you have ever declared bankruptcy, of course you must answer truthfully.

So that means that in some ways, bankruptcy remains on your record forever.

And bankruptcy is not guaranteed to discharge your debts.

You still must pay income tax, you still must pay child support, you still must pay student loans, and there are many other debts that you are required to pay.

This is not to say that you should never consider bankruptcy under any circumstances. You should consult with a qualified bankruptcy attorney before you do so, though, and be completely honest about your circumstances and your prospects for earnings in the next few years.

You also should do online research before you even go speak to an attorney, so you can make the final decision yourself. You should know the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy, find out exactly how long each type of bankruptcy will remain on your credit report, and learn what kinds of debts you will continue paying. You should get a realistic view of what life will be like after you declare bankruptcy.

Chapter 7 basically means handing over all property not exempt from bankruptcy proceedings so it can be sold off to repay debts. There is no repayment plan. It stays on your credit report for 10 years and these days, with the new bankruptcy laws, many people who aren’t earning that much money find that their income still is too high to qualify.

Chapter 13 involves a repayment plan and stays on your credit report for 13 years.

So before you make a decision that will affect your life and your credit for decades to come, do your research, find out whether it is worth declaring bankruptcy, and consider trying to design your own debt payoff plan – one that YOU have control over.

If you are in debt and having trouble paying it off, obviously, raising some quick cash can take a little pressure off. It’s always good to have a stash of emergency spending money on hand, or to put some extra money towards your bills.

Here are 10 ways to raise some extra money right now (not a fortune, but every little bit helps):

1.) Hold a garage sale. Organize one with your neighbors to make it even more appealing to garage sale shoppers. Check the weather beforehand to try to make sure that it will be a  nice day out, and consider advertising in your local paper.

2.) Sell stuff from around the house on ebay.

3.) Sell your books on Amazon.com.

4.) Consider taking a part time job on nights, weekends, or both, for a few months until you have paid down your debt and set aside from emergency spending money. Don’t do it for too long, because you’ll burn yourself out, but it can be a good short term option.

5.) Pawn items from around the house.

6.) Do you have skills that people could benefit from online? Guru.com, elance.com, rentacoder.com, odesk.com, and many other freelance sites will let you market yourself. If you can write articles, do graphic design, have web programming skills or coding skills…there is money to be made.

7.) Sign up for a temp agency.

8.) Buy stuff at garage sales and resell it on ebay.

9.) Donate blood

10.) Sell crafts online through Etsy.

If you owe money to multiple creditors, you know what a pain it is to pay numerous bills every month. You’re also probably seeking to lower the total monthly amount that you pay.

A lot of people in these circumstances consider turning to debt consolidation loans – but there are some things that you should know before you make the decision to apply for one.

First of all, you generally are going to have to pay some kind of fee to the debt consolidation company, so you are going to owe MORE than when you started. The loan term may be longer – so you may be paying a little bit less every month, which means that you will have payments for a much longer period.

So debt consolidation loans may lower your payments each month but in the long run you will end up paying more money, possibly a lot more.

Also, if you are late on your payments, or have less than perfect credit for other reasons, you are likely to be charged higher interest rates. The people who need debt consolidation loans the most are those who are likely to get charged very high interest rates.

There are also a number of reasons that debt consolidation loans can hurt your credit. You will have to apply for new credit to get one, and applying for new credit lowers your credit score. You will be closing a number of old established credit lines, which also lowers your credit score.

And if the loan requires that you negotiate with creditors to get a “deficiency balance”, that counts against your credit just like late payments. That means that creditors agree to accept less then you owe them so that you will repay them something; that’s always risky. For one thing in many states it is legal for creditors to renege on that agreement, and for another it hurts your credit.

And here’s a final argument against debt consolidation loans; they don’t address the problem that got you into trouble in the first place – which in most cases is poor fiscal habits.

So you might not have to make a payment for a month or two, and then you start paying a lower amount – and what many consumer agencies report finding is that people who take out debt consolidation loans end up getting even DEEPER in debt!

So consider all of the possible negative ramifications, and be truly committed to changing your spending habits, before applying for a debt consolidation loan.

Debt collectors are not your friends. Yes, you need to pay off your debts – but you don’t have to put up with being harassed, threatened, intimidated, and stalked.

So here’s some advice and some words of caution.

If you get calls from a debt collection agency, you may want to consider asking that they communicate with you in writing. This provides you with their name, address, and telephone number. You want to be able to do a little research and verify that they are a legitimate agency. You want to have their contact information so that you can report them if they do anything illegal. And it’s always better to have things in writing should matters end up in court.

Don’t EVER give out personal financial information over the telephone. If someone calls you up and starts pressuring you to give out this information, tell them to put their request in writing and mail it to you – and if they continue to pressure you, hang up.

It could be an outright thief who has gotten ahold of your contact information. It could be a sleazy debt collection agency who will take money out of your account whether you authorize them to or not.

But it is NEVER a good idea to give out that kind of information over the telephone.

If a debt collection agency offers you a deal that sounds too good to be true – it just may well be.

Debt collection agencies frequently will offer to let you pay off a reduced amount if you pay it all off at once. But guess what? In some states, it is legal for them to SAY that – and then, when you have paid off the lump sum – sell the remaining debt to another collection agency! Yes, it’s incredibly sleazy, and it’s amazing that it’s legal anywhere for a debt collector to lie to you – but it is.

So your best bet,  truly, if you are being hounded by debt collectors, is to invest in consulting with an attorney and finding out what your rights are in your home state.

You may even be eligible to consult with an attorney for free or reduced cost – check with the legal aid societies in your area, or with your state bar association. Some attorneys volunteer their time and may speak with you for free for an hour  about your legal rights as regards to debt collection, saving you from the risk of costly missteps, outright scams, and even worse dings on your credit report.

William Shakespeare had some wise advice regarding debt: “Neither a borrower nor a lender be; For loan oft loses both itself and friend”. Apparently most people in America aren’t listening to him, because by 2008, total household debt totaled $13.8 trillion.

And in 2009, unfortunately, we’re seeing the end results of that debt-fueled lifestyle as foreclosures and repossessions sweep through the land.

This isn’t to say that all debt is bad; for many people, borrowing money is the only way to buy a house, which comes with significant tax advantages and can be a good long-term investment.

However, many people today are finding that they have borrowed too much money to pay for luxury items and now they are are trapped in a nightmarish situation where they’re dodging creditor’s calls, their debt is rising every month as they get socked with late fees, their credit is ruined, and they see no way out.

Here is the good news: you CAN get out of debt. Here’s the bad news: you have to make immediate, significant changes to your lifestyle to do so. You can’t keep doing exactly what you’ve been doing and expect things to get better.

The first thing that you need to do is gather up all of your bills and make a list of living expenses.

The cable TV bill doesn’t count as a living expense. Restaurant outings don’t count as a living expense. We’re talking grocery bills, electricity, heating bill, fuel costs to drive to work, clothing, etc. If you are in debt and want to pay it off you are going to have to cut back on all luxury expenses until you are out of debt – or odds are you will never get out of debt.

Think about this – if your credit card company is hitting you with fees every month…and charging you 28 percent interest because of your lousy credit…every single luxury purchase that you make costs you 28 percent more than its actual price – because you could have used that money to pay down your debt. And if you are being charged 28 percent interest, every dollar that you owe is really $1.28.

Next, you have to write down every single debt that you owe. Yes, it’s going to be painful, but again, it has to be done.Now write down the amount of money that you take in every month.

Let’s say you take in $2000 a month. You have pared down your living expenses to the bare minimum and made the commitment to give up luxury spending until you have paid down your debt to the point where you take in enough money every month to pay your expenses, put money in savings, and make payments towards your debt.

So let’s say your bare minimum living expenses are $1000, and you have $1500 in payments that you need to make to your debtors every month.You can’t manufacture an extra $500 a month. Yes, you can start selling things on ebay or go get a part time job, and if you are in debt you certainly should consider how to raise extra cash, but you need to budget for the amount that you currently earn.

You now need to call up all of your debtors and renegotiate. These days, debtors recognize that getting some money every month is better than getting nothing, and they are much more open to negotiation.So you need to figure out exactly how much you can afford to give each debtor every month, and get them to agree to it.

When you call, be polite, explain your situation and why you are behind in your payments, and tell them how much you can afford to pay.

You will be surprised at how receptive most lending institutions are.
And you will feel a huge weight off your shoulders as you begin the journey to paying off your debts and becoming debt free.