• Because there often are errors on a credit report that you will want to fix.
• Because there may be items on there that can be fixed with advance planning, once you know what shows up. For example, look at your balance to credit-limit ratio. If you can get your balances down to under 50% of your credit limit, you will have a higher score. Or you missed a 30-day payment deadline but your report shows it as 90 days. This can be fixed. Check http://www.money.cnn.com
  
• Because nowadays, identity theft has become a huge issue. Identity theft means that someone is posing as YOU, using your social security no., and possibly running up huge balances on credit cards which you don't even know about. Look at http://www.money.cnn.com/2006/04/03/pf/saving/willis_tips/index.htm
  http://money.cnn.com/2006/03/13/pf/trusted_id/index.htm

How do I improve my credit score?

1. Maintain relationships with creditors. The longer your affiliation with your creditors, the better you score. This accounts for 15% of your FICO score.  There is no need to close open credit cards (e.g. store cards), if you are not using them. This is unused credit, and that does not hurt your score.

2. Pay down your balances to at least under 50% of the credit limit. You will then also have a lower income to debt ratio, which also looks a lot better.

3. Start keeping track of paying your bills on time, so that the next credit report will look a lot better. You can do bill payments online, and set automatic payments for certain dates, so that you will not forget.

4. Do not be in the position of constantly making credit inquiries, applying for new credit etc. Each act requires a peek at your credit history/report, and the more inquiries, the worse it looks for you. Remember, you are entitled to your ONE free annual report, with no penalty.

5. Keep track of your credit. Even if you do not have an auto loan, or some hefty credit history, how you juggle student loans and watch the balances on one or two credit cards does affect your score. By the way, a good way to start along the road to getting your good credit history if you do not have much of one, is by opening a store credit card, even one with a low credit limit. Being able to make timely payments and not maxing out that card puts you on the road to a good score.

What is "good" and "bad" debt?

Revolving credit (credit cards and unsecured loans), if not managed and allowed to rocket in debt balances, is considered to have a bad impact on the credit-utitlization ratio.

Instalment loans (mortgages, auto loans) are considered differently, but will factor into the income-to-debt ration. A home equity loan can be considered an instalment loan, if it is a sizable withdrawal for a home improvement project, college funds, auto purchase etc. Small withdrawals are considered as revolving credit.

What is credit counseling?

Credit counseling can be both good or bad. Basically, the person goes to an agency that will negotiate with the creditors to lower interest rates. The client cuts up cards, and presents a check to the agency every month, out of which the agency will manage payments. Remember that the credit agency charges the client, but also gets a cut from the credit companies, which would much rather collect than not. Therein lies the conflict of interest.

For more information, check: 
http://www.money.cnn.com/

What is important to know is that you CAN manage your debt yourself by negotiating with the credit card companies and making a plan yourself to make the ratios mentioned above look better. If you do decide to go for professional credit counselling, do check National Foundation for Credit Counseling (http://www.nfcc.org) and cross-check with the Better Business Bureau, at http://www.bbb.org. At least, you will have access to complaints filed against credit counseling agencies.

What is the scoop on credit cards?

The interest you pay for your credit card is determined by your credit score. The problem is that there is no regulation for the credit-card industry. Interest rates can change at any time, and when you sign on, you will have agreed to this unpleasant small print. Make sure to check your statement every month. And don't forget to check that credit report every year!

For detailed information, check http://www.money.cnn.com/magazines/moneymag

What is the good news about all this?

It is not rocket science. And whatever that score tells you, it is NOT personal, just a process. And you CAN control your financial future, given certain knowledge and planning. Remember, improving your credit ratings cannot be done overnight. But it is something that has to be confronted and understood, and then steps can be taken to make your goals a reality.

Please enjoy these links, and may the Credit God smile on you!

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