The 'Perfect Score' - Managing Your Credit

 Part of my new year's resolution is to improve my credit. A lot of people treat their credit with little to no regard and are blind to the consequences that come from such neglect. Taking care of your credit and maintaining a high score will help you in many things like renting an apartment and financing a car. Yes, it is true that money talks, and liquid cash is great, but keeping your credit score healthy can back you up when it comes to credibility. If your credit is poor, then it is a good idea to work on improving it, even if you don't plan on using it. The most important thing to remember is that your credit matters, and it speaks about your personal finance whether you want to or not.

Already have a great credit score? Congrats! Keep up the good work and continue to show you have vast skills in managing your own finances. Maybe you should focus on getting rich and becoming a millionaire! NO JOKE! This is my next step after I work on my credit for a year. Check out this article by Grant Cardone: How to Become a Millionaire by Age 30.

Want tips on how to get 'the perfect score'? Well read on my friend. I am on the same boat, and have compiled a list of tips and 'secrets of the trade'.

Number 1. (you have full control over is this) DO NOT spend more than you make. The easiest way to do that is to spend more time making money than you do spending it. Cut back on all things that are not necessary to survive, for example if it's not food shelter and water you don't desperately need it. Face it, we have a list of things that we spend money on out of convenience, pleasure indulgence, and some even out of habit. Those are not necessary, so cut back where you can and accept that this small sacrifice is worth it and possibly not permanent.

Number 2. Know the difference between your credit score and your credit report as well as where to view them (for free of course). Your credit report is a huge file about you and your credit history including personal information, a summary of your accounts, if you've filed for bankruptcy in the past and any inquiries made. Your credit score is your FICO number, which lenders use along with your credit report to determine how risky a borrower you are.

There are many ways to obtain your credit score for free, for example the Discover Credit Card displays your score on a monthly basis with every statement. There is also CreditKarma.com that will help you manage your debt (if you have any). Obtaining your credit report is not as easy, but the good news is that you can view it with AnnualCreditReport.com free once every year., Otherwise you can pay the small fee to view at any point in time. Once you obtain the copy of your credit report, carefully go over it to ensure there are no errors, and take immediate action should you be a victim of identity theft (all those websites have helpful links to assist with Identity Theft).

Number 3. Learn how credit works! There are three major reporting agencies that calculate your credit score independently: Experian, Equifax, and Transunion. Their scores can vary depending on the data they use. The five factors and go into calculating your credit score are:

1) Payment History - late payments are a huge negative, pay your bills EARLY
2) Total Amount Owed - aim to use less than 30% of your total available across all accounts
3) Length of Credit History - get an early start on building your credit, ask your bank
4) New Credit - all recently opened accounts and credit inquiries are included
5) Types of Credit Used - car loans, mortgages, and credit cards are included

The goal is to get your score to be above 760 (excellent credit). Anyone scoring below 620 is considered a subprime borrower. In order to manage your credit history and score, here are some helpful hints provided by Debra Neiman from her article Managing Your Credit Score.

-Set dates for getting your credit reports
-Spread your requests to be once every 4 months
-Get your credit score once a year (check out FICO.com has your score from all 3 agencies)
-Look up your cards, don't cancel them (your score depends on the number of credit lines you have open and in good standing and the length of time they're open)
-Pay on time (get current and start paying in advance)
-Monitor credit problems (determine when events such as bankruptcy and debt collections should be removed from your report and follow up on that!)
-Choreograph your payments (start paying off the highest-rate balances first)
-Keep your balances low (no more than 50% of your entire credit lines combined)
-Limit your credit inquiries (remove yourself from direct mailing lists go to GreenDimes.com)
-Research big credit loans in advance (ask potential lender which credit bureau they use)
-Track your credit card spending (the goal is to know your payment before the statement arrives and plan accordingly, I like to use Mint.com to create and manage monthly budgets)

There are many ways to manage and improve your credit score, you just need to start caring more about it and give your credit the attention it needs to reflect upon you in a positive way. "We live in a country where a healthy credit score and having the ability to borrow money is seen as one of the biggest accomplishments in personal finance" (Brittany Castro).

"Start with baby steps and take time to really understand the importance of having a good credit score" (Brittany Castro, Founder and CEO of Financially Wise Women). Check out this article on How a Good Credit Score Can Save You More Than $100,000.