When was the last time you checked your credit report? If you're like many Americans, the answer is probably 'never.'
You should check your credit score annually. First, your credit report allows you to identify any mistakes on it, or - even worse - signs that your identity has been compromised and that someone's using your name to obtain financing or credit cards illegally.
Second, your credit report, and what's known as your FICO score, are your secret weapons when it comes to obtaining credit in the form of loans, lines of credit, mortgages or credit cards. Improve your credit rating, and you improve not only your chances of obtaining the financing you're looking for, but also the terms that your financial institution will be willing to offer.
Here are some quick tips for improving your credit rating and FICO score:
1. Check your credit report for mistakes. Request a copy of your credit report from the three major credit reporting agencies annually (www.equifax.com; www.experian.com; www.transunion.com), and check to make sure that all of the information on the reports is correct. If it's not, follow the agency's procedures to request the correction, which is free. (Don't be tempted by various firms that offer to fix your credit report for a fee: you can do it yourself for free!) You're allowed one free credit report per year from each of the major credit reporting agencies.
2. Also check your FICO score. The credit reporting agencies use a formula to translate your credit details into a number between about 300 and 900, with a higher number showing that you're a better credit risk. Most people fall between 600 and 700 - finding out where you stand right now can help you determine how to improve (you may have to pay a small fee to obtain your score).
3. Develop a good credit 'mix.' Financial institutions want to see that you have a credit history, and that it's a good one. A combination of revolving credit (such as credit cards) and installment loans (such as car loans) shows that you can use various types of credit wisely.
4. Pay on time. Your credit score will show if you're paying your bills when or before they're due, and whether your accounts in good standing. Paying your bills on time and never missing payments will help you to prove that you can manage credit.
5. Avoid making many requests for new credit. If you're looking for new credit cards or loans from several different credit providers in a relatively short period of time, these requests will show up on your credit report, and will likely reduce your score - they warn potential lenders that you may be in financial trouble.
6. Don't max out your credit cards. If you're close to the limit on your existing cards, and you're only making small payments against the principal each month, it's a clear signal to credit providers that you can't pay off the credit that you have now - so they're unlikely to give you more.
7. Stay away from bankruptcy. Bankruptcies remain on your credit report for up to 10 years, so they should be used only as a last resort, and only if nothing else has worked for you. If you need financial assistance or counseling, check out the resources wherever you're stationed (you can often find financial counselors through your local family resource center) or on this site in the 'finance' section.
Even if your score is low, don't worry - you can show improvement in a relatively short period of time with a little careful credit and debt management.
Stanley J. Kershman is The Debt Doctor. A leading authority on solving financial disasters, he has been helping people get out of debt for more than 25 years. He's also the author of Put Your Debt on a Diet: A Step-by-Step Guide to Financial Fitness (Pepper Pike Press), a practical handbook that walks you through the process of improving your money management skills. For free copies of Stanley's handy budgeting worksheets, visit www.debtonadiet.com.
