Take Steps Now to Improve your Credit Score

Regardless of the economic circumstances, having good credit can only be an advantage to you. And when the economic outlook is as gloomy as it currently is, it's even more important. Indeed, you may have – due to necessity – over-utilized your credit cards recently. If your finances have been on shaky ground, and today's credit crunch has only seemed to exacerbate the situation, here are five tips that will help you to improve your credit score:

  • Even though it's widely known that recent federal laws now give you the right to obtain a free copy of your credit report annually from each of the three major credit reporting agencies, many people still do not know just what information is in their credit files. If you haven't already done so, visit AnnualCreditReport.com, which is the only government-approved site from which to get your free credit reports. After you've printed out your reports, check them over carefully to determine if any suspicious activity has taken place. Also, look for any informational errors or entries on the report that you don't recognize or wish to dispute.

    In order to obtain your actual FICO score, you can visit MyFICO.com. The site also details the current interest rates for home mortgages and car loans based on your particular score.

  • Pay down your credit card debt. Credit cards and other accounts carrying the highest interest rates should be paid off first. Add additional money to the minimum monthly payment you send in to facilitate quicker reduction of the debt. And, by all means, pay your credit card bills (and all others, too) on time in order to avoid being subject to the Universal Default Clause. With this clause, creditors can raise the interest rate on your account even if you haven't missed or been late with a payment to them.
  • During this economic crisis, you may find that using credit to pay for items you need is tempting, allowing you to keep more of your cash. The problem with this strategy, however, is that if you max out your cards, it may not only cause future financial difficulties, it can lower your FICO score as well. The general rule of thumb for good credit is to use no more than 30 percent of your total credit limit.
  • While consolidating credit cards may save money on interest payments, it does not necessarily bode well for your credit report. So, if you already have two or more credit cards, it's recommended that you avoid applying for any additional credit. Doing so may reduce your credit score.
  • In these difficult times, it may be necessary to make a mortgage payment, pay for expensive medication or utilize a credit card for an expense that, under normal conditions, you would pay for with cash. Perhaps it's only a one-time occurrence. If so, do your best to pay off that specific charge immediately.

With banks current putting most of their lending operations in the deep freeze, it may be some time before you'll be able to secure a loan. And, even if you do find a bank willing to lend to you, your FICO score will have to be much higher than before. It's therefore wise to do all that you can to improve your score now. Then, if or when a loan becomes necessary, you'll be in a much better financial position to obtain one.

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