Your credit score is a numerical calculation that reflects your creditworthiness. Following is credit score information to help you better understand the nature of this beast.

Credit score, or credit rating, was designed to offer busy lenders a quick assessment of your risk to default on your payments. A high credit score indicates low risk, and a low score indicates greater risk of default.

A low credit score can wreck havoc in your financial life (and life in general). It leads to denial of credit by most lenders, or getting charged ridiculous interest rates by those who “take the risk” by lending to you. A high credit score offers great rewards, such huge savings on mortgage, auto loans and basically all forms of credit.

Most credit scores range from lows (300 to 400) to highs (800 to 850). Credit scoring does differ between the three major credit reporting bureaus. This can be attributed in part to the fact that certain accounts are either reported differently or don’t show up on each report.

Some lenders do not report your credit to all the three major bureaus. Why? Because each time they report, they get charged a fee.

A score of 850 is considered perfect. A score of 750 and over is considered very good by most lenders. A score of 650 and above is considered good while a score between 620 and 650 may be considered basically good but also indicates some risk. A score below 620 indicates higher risk and may cause denial of credit or higher interest rates.

How is credit scoring done? After intense pressure from Congress and advocacy groups, the biggest credit scoring company, Fair Isaac Corporation (FICO), finally decided to disclose its credit scoring guidelines. These guidelines include the following:

1. Your payment history (35%): Payment history is considered the most important factor in determining your credit risk.

2. Amounts you owe (30%): This is the next most important factor in your credit score. It is taken as an indication of whether you manage credit responsibly.

3. Length of credit (15%): A longer credit history increases your score.

4. Variety of credit (10%): A “healthy mix” is what’s desired here. Riskier types of credit mean will lower your score. For example, if most of your credit is in the form of revolving credit (such as credit cards), your score will be lower than if your debt is from a mortgage.

5. Your new credit (10%): Opening too many new accounts indicates greater risk. What FICO is looking for is an established credit history without too many new accounts.

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The promise of getting out of debt easily and quickly is indeed enticing. There are numerous debt consolidation professionals, companies and “non-profit” organizations that promise to consolidate your credit card debts into one easy monthly payment, reduce your interest rates, and get you out of debt. But are they worth their salt?

Just what is “Credit card debt consolidation”? Why is it such an important topic?

Dictionary.com defines the word “consolidate” as, “to bring together (separate parts) into a single or unified whole; unite; combine.

“Credit card debt consolidation” refers to:

1) Consolidation of the debt on various credit cards into a single credit card (or a couple of credit cards) at a lower interest rate. This can also be referred to as balance transfer.

2) Borrowing of money by use of collateral such as a mortgage or home equity loan and using it to pay off your credit cards, with or without enlisting the service of a professional, organization or company. In this case, you’re left with just one payment to make - the money you borrowed to pay off your debts.

3) Enlisting the help of an intermidiary such as credit counselor, agency, organization or company to consolidate your credit card debts into one monthly payment and negotiate lower interest rate(s) on your behalf.

Credit card debt consolidation seems like a good way of tackling the problem of credit card debt. But there are upsides and downsides as well as the good, the bad and the downright ugly. This is subject of a future post.

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