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Friday, October 25, 2013

Managing your credit rating

If you have bad credit, it is important to learn how to properly manage your credit score, so you can gain approval for loans, and get a new job. Many employers review your credit history as part of the hiring process, and if you aren't managing your credit wisely, you can easily hurt your career -- and financial -- future.

Credit scores can decline when more than 30% of credit limit is used
Image via Shutterstock

How your score is calculated

A credit score is based on several different factors. Some of the largest elements that impact your credit score include the length of your credit history. Creditors prefer people with a longer history since it helps them evaluate their financial discipline. The type of credit accounts you have open will impact your credit rating. A poor history with credit cards and personal loans can cause more damage to a credit score than a student loan.

One of the major factors that impacts your credit score is your payment history. The amount of money owed on each line of credit can impact your score. If you are using more than 30% of the total credit limit available, that can also hurt your credit rating. Lenders want to see that you sparingly use available money and that you do not rely on it.

How often do you apply for new credit? If you are sending out credit card offers every month, it will ding your credit rating. Reduce the amount of times you seek new credit -- even for car loans -- to increase your credit rating.

Fixing your credit score

You can obtain a free copy of your credit report from each credit bureau once each year. Order a free copy of your credit report to review the information on the report. There are usually some inaccuracies on credit reports that can be disputed and it is important to make sure all the information on the report is accurate if you want to keep a good score. After disputing inaccurate information, be sure to review your new score.

You can also help your score by automating the payments on your credit cards and other accounts, as this will help ensure that your payments are made on time.

Focus on paying down your credit card balances as quickly as you can. One way to do this is by picking the lowest balance credit card and paying off the balance. Once you have paid off this card, move to the next card. You can double the payment amount now that you have paid off the other card.

As you focus on paying off each card individually while still meeting the minimum requirements on your other accounts, you will notice that your credit rating is improving. Don't close your old credit cards, even the retail cards, as the old accounts increase the total credit that is available to you. This helps to reduce the usage amount in your name, which lowers your score. It is wise to avoid opening new credit card accounts, especially the retail accounts since they have a higher interest rate from other cards.

Managing your credit responsibly will make you eligible for lower interest rates on new loans. This can help you save thousands of dollars a year when you are applying for large loans, such as a mortgage. 

About the author: This article was contributed by Richard Craft, an MBA student who hopes to help you with your personal finance issues. He writes this on behalf of www.bestcredit.net. Check out their website today and see how they can help you with your credit!