Establish A Good Credit Rating, And Keep It

These days you need a good credit rating to buy a house, get a job or even a preferred rate on your homeowner's or life insurance policy. Your credit "rating," as determined by your credit report, has the power to bring you your dreams or grind your financial hopes into dust.

Credit rating (or more commonly, your credit score) is a number that attempts to predict how likely you are to pay back a debt. This score comes from comprehensive records kept on your payment history by the nation's three credit reporting bureaus - TransUnion, Equifax and Experian. Your mission is to make your records look as sterling as possible.

How To Establish a Good Credit Rating

Start by ordering a free credit report online to check it for errors that could affect your credit rating. Free reports generally do not include free scores so you'll have to pay a little extra. Don't worry, the information you gain is well worth it. Once you know where you stand, you can begin a campaign to improve your credit. Remember your credit score wasn't created overnight, so it will take some time to build it back up if it's too low.

• Pay your bills on time. Paying even a few days late puts you in a different category. Credit reporting bureaus keep track of payments that are 30, 60, 90, and 120 days late. Most mortgages offer a grace period of 10 or 15 days after the due date before your payment is officially late and you're charged a late fee. But for scoring purposes, if you've not paid by your due date, you're late.


• Own two to four credit cards. Less is bad; so is more, according to most scoring systems. Keep a checking and savings account. If you have neither, you'll have points deducted from your score.


• Keep your debt-to-income ratio under 20 percent.


• Make infrequent requests for credit. Your credit file shows how many inquiries have been made about you recently from credit issuers. If there have been more than four over the past year, that's a strike.


• Stay put. If you've been in your current home for four years or longer, and with your current employer for five years or more, you rack up points.


• Keep balances below 30% of credit limit. Lenders also look at your spending behavior. How close are you to the limits on your various cards? How many cards do you use? What do you carry in balances?

Maintaining Your Good Credit Rating

Part of ongoing credit maintenance is contesting errors in a timely fashion. Errors on credit reports are surprisingly common, but many go uncorrected for years, damaging unsuspecting people all the while.

If your report contains errors, write the credit bureau immediately. The bureau is required to start an investigation into the matter and conclude it within 30 days. However, realistically, that deadline may come and go. You will have to be persistent, specific and well organized to have errors removed. Keep a calendar of your correspondance and don't let the matter drop until you are satisfied with the outcome.