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Your credit report compiles the information that lenders use to determine their risk when you ask them for credit. If you maintain a high credit score, lenders will be falling over themselves to get your business. This means they will offer you the lowest interest possible on loans because they know there is a high probability that they can count on timely payments and that you will pay the loan in full. Understanding how your credit is scored, monitoring your credit and staying within your limits will help ensure that you spend as little as possible on interest.

Understanding Credit Score Factors

Credit bureaus use five main factors to calculate your credit score. The key to achieving a high credit score is to understand how it s calculated. Your payment history weighs the heaviest when scoring your credit. Opening a credit card   and using it responsibly   is one way to establish a good payment history. On-time payments are essential to a high credit score. Late payments will reflect on your credit score for years. Creditors want to have confidence that you pay your bills on time. A good way to pay your bills on time is to take advantage of automatic bill pay. In the rare case that your creditor does not offer auto bill pay, set your own calendar reminders. Do whatever you can to make sure you pay on time.

Lenders also notice how close you are to your credit limit. Your balance should be a small portion of your total available credit. It is the second most important criteria used to calculate your credit score. When you use your credit cards, you want to make sure you can pay most of the balance quickly. Maxing out your credit cards reflects negatively on your credit report. You should also have a mix of revolving and fixed credit accounts.

The last three factors are the length of your credit history, your credit mix and how much new credit you have. The best credit report is one with a lengthy history so lenders see patterns of financial responsibility. It s helpful if you have mixed credit account types, including revolving and fixed loans. This shows you can handle credit obligations with different terms. Opening several new accounts in a short time can count against you. However, if you had some past credit problems, new accounts can help you re-establish your credit. Using these five criteria to manage your finances can help you achieve high credit scores.

Monitoring Your Credit

Once you know how your credit score is calculated, you can track your credit using credit monitoring services. The best credit monitoring service is one that pulls your financial date from the three top credit bureaus. Some lenders report to all three, but others might report to just one. Since your reports can vary slightly, you want a service that will look at all three. Whether you are trying to raise your credit score or just maintain a high score, you need to know what s on your report. Monitor your report frequently to check your progress, and make adjustments as needed.

Fraudulent use of your personal information can devastate your credit. Monitoring your credit can help you identify data breaches and repair the damage as soon as possible. If your data is compromised, credit monitoring services can help you with the restoration process.

Control Spending

Credit is helpful when there is an emergency, but non-essential items can add up if you don t make a financial plan. When you find yourself regularly charging more money to your credit cards than you can pay each month, you need a budget and a plan. If you are having trouble paying off your credit card bill, then it will be even more challenging to pay the interest you can accumulate when you carry high card balances. The cycle can get even worse when your interest rates increase because your available credit has decreased. Research personal finance information online and learn to create and to stick to a budget.

There are many reasons why people may accumulate too much debt. Examine the underlying reasons behind your spending habits and address them. Mastering your budget can save you a great deal of money in helping to increase your credit score and to lower your interest rates.

Once you know how they determine your credit score, focus on the areas that affect your score the most by making on-time payments and keeping your debt-to-credit ratio low. Keep track of your score and all your credit accounts by monitoring your credit information from all three bureaus. Create a budget to help you manage your finances and to help you avoid lowering your credit score. These are all ways to help you maintain a flawless annual credit report.

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