How to Improve Credit Health

Banks and other kinds of creditors often look at credit scores to help determine whether you are creditworthyor not to extend you credit and whether you are able to pay on a car loan, home improvement loan, mortgage or other financing.

Getting a Handle on Credit Scores

First, credit reports and scores are two different things. Your credit report is basically a credit history listing things like accounts closed and opened, your payment history and amounts you’ve owed and still owe. It shows data that may have been used to determineincludes your credit limits and can be used by lenders to help them determine how responsible you were within those parameters.

Credit scores, on the other hand, take that credit report information and turn it into numbers, usually three digits long. There are many different credit scores out there and creditors can choose whichever they want to help them evaluate a credit application (they can also ignore credit scores altogether).

What those three digits say about you may help determine the interest rate you will receive. Generally, higher scores receive lower rates and vice versa.

Fortunately, when you asking for a copy of your report, this does not impact your credit score in the least. In fact, at a minimum, you should ask for yours once a year.

Rest assured though, your credit score is not etched in granite. You can improve it. It’s simply a marker in time and nothing more. Usually, increasing your score comes down to responsible credit use.

The road to a healthier credit score

Maybe credit problems from your past haunt your current score. That’s ok, because you always have the power to change your credit habitsit. Here are some good credit practices that usually won’t harm your credit standing and may actually help it:

• Pay bills on time. Even if you cannot pay in full, be sure to make the minimum payment.
• Watch your credit card balances. Make sure you’re not using too much of your available credit.
• Don’t mindlessly open new credit card accounts. If you apply for new cards, make sure you don’t do so too frequently. This behavior may look irresponsible to creditors.
• Alert banks and card companies when you move. You don’t want to see your bills have gone unpaid because the mail didn’t go to the correct address.
• Check your accounts online. There’s no reason to wait for the bills to come in the mail. You should make sure payments are clearing and cards are being kept current.
• Pay off delinquent bills. Paying down delinquent accounts won’t remove missed payments from your report. But it can make you look better to creditors.
• Look for inaccuracies. Sometimes information reported to the credit reporting agencies isn’t quite right or is incomplete. The credit reporting agencies make it easy for you to dispute these inaccuracies. And remember, credit bureaus are just the messengers—it’s up to you to let them know one of your creditors reported inaccurate information.

Credit scores can be incredibly important. They can represent an interpretation of your creditworthiness and may help creditors decide what kind of risk you are and what interest rate you will be offered. Pay careful attention to your credit history so you know where you stand.

And remember, pay your bills.