Why You Need A Good Credit Rating

Having a good credit rating means having access to additional credit when you need it. Do you know how to build, maintain, and improve your credit rating?

Having a good credit rating is important to everyone. It can help you to:

• Finance a car

• Rent an apartment

• Get a home mortgage

• Set up utility accounts

• Obtain employment

If you haven't established credit yet, or if you have a poor credit rating, that doesn't mean you can't do any of these things, but you may find it more difficult.

Building Good Credit

When you're just starting out, it may be difficult to establish your credit history. To build good credit, there are several steps you can take, including:

• Open a checking or a savings account. This is a convenient way to pay your bills and is particularly important to prospective landlords who expect to receive rent checks each month. For more information on checking and savings accounts, see our Knowledge Center articles on these topics.

• Open a retail store account. Stores often have special offers enticing you to apply for their credit cards. The interest rate on this type of card tends to be high, so you may want to charge very small purchases that you can afford to pay in full each month.

• Ask a family member or friend to co-sign a loan for you. Making regular payments shows creditors you are a responsible credit consumer. After six months to a year, you may be able to apply for credit on your own.

Maintaining Good Credit

Once you've established a good credit history, it's vital that you keep it that way. Keys to maintaining good credit include:

• Pay your bills on time. This is the single most important factor to maintaining good credit. Creditors want to be certain you can pay at least the minimum due on time each month.

• Don't overextend yourself. Be careful about charging up to your credit limit on credit cards. The minimum payment each month will be large, and you may not be able to pay down the debt. Also, when there's no available credit on an account, you can't use it for emergencies.

• Watch your debt-to-income ratio. Your debt-to-income ratio is generally defined as your regular monthly bills (excluding rent or mortgage and utilities) divided by your gross monthly income. If your debt-to-income ratio is 20% to 30%, it's time to take a hard look at your finances. For more information on calculating your debt-to-income ratio, read the related articles in our Knowledge Center Library.

• Keep your open credit accounts to a minimum. If you have a number of credit accounts open, your future creditors may be alarmed at the large combined open credit line. On the other hand, keeping a certain number of accounts open with a zero balance shows a good credit history and will give you a higher credit score. You should try to find a balance between too many credit accounts and too few. Remember that the key is having a paid-off account. If it is too difficult for you to resist charging up a credit account, it is probably better to close it. Remember that cutting up your card is not the same as closing the account: to close a credit account you must notify the creditor in writing.

• Review your credit report regularly for inaccuracies. Creditors evaluate your financial health by reviewing your credit report, so be sure it's correct. You are entitled to a free credit report once a year: visit theAnnualCreditReport.com website to order one. For more information on credit reports, read the related articles in our Knowledge Center Library.

• Avoid bankruptcy. Bankruptcy is often considered the most negative aspect of a credit profile, so don't make the decision to file without carefully considering your alternatives. With the enactment of the 2005Bankruptcy Abuse Prevention and Consumer Protection Act, rules about filing bankruptcy are much stricter. See our related Knowledge Center articles about bankruptcy. Remember, a bankruptcy can stay on your credit report for as long as 10 years.

Improving Your Credit Rating

If you're had financial difficulties that have negatively impacted your credit rating, don't despair. You can take steps to improve bad credit. Keep in mind that you can't erase bad credit, but you can replace it with good information. In addition to the suggestions already made in this article, you can also:

• Apply for a secured credit card. Many credit card issuers will offer you a secured credit card regardless of how poor your credit may be. You'll need to place a certain amount of money on deposit as collateral, but over time you'll demonstrate a good payment history and will qualify for a regular credit card. Visit the IndexCreditCards.com and the Bankrate.com websites to compare credit cards, including secured cards.

If you want to establish and maintain good credit, follow the steps outlined above. Then, when you need additional credit you will be able to get it. For more ideas on building and keeping good credit, see the Insurance Journal article Tips on Maintaining a Good Credit Score. See also the advice from Wells Fargo Bank about Maintaining Good Credit.

Take control of your finances with our debt help tools. Use ourcalculators and budget planner to help you manage your money.

Related Credit Protection Law Articles:

• The Truth About the Truth in Lending Act &ndash Creditors must disclose vital information about finance charges and other terms and policies affecting your standing with them. Be sure to check the fine print for information about your projected interest rate, dispute policies, grace periods, and any recission (change-of-mind) policies before filling out the application.

• Your Consumer Rights are Protected by the Federal Trade Commission &ndash The Federal Trade Commission protects consumer rights under law. Learn what your rights are as a consumer and how to get help exercising those rights is this helpful resource.

• Your Credit Rights are Protected by The Equal Credit Opportunity Act &ndash When you apply for credit, you are protected from discrimination by the Equal Credit Opportunity Act. Review this guide to determine your rights under law.