• Good credit can also be essential to securing favorable financing terms when buying a car, household furnishings, or even a new home.

• Employers may check the credit rating of job applicants. Many employers feel that a solid credit rating is an indication that you handle your personal matters responsibly, and this reflects positively on your ability to successfully manage your job.

• A good credit rating also may make it easier for you to rent an apartment. A positive credit rating may be a sign to landlords that you are a person who's more likely to pay your rent on time each month.

• Increasingly, companies are using credit ratings to help manage risk. For instance, in the future, it is anticipated that more and more insurance and health care companies will be relying on credit reports, credit scores, and other proprietary risk models in deciding how to manage their coverage and rates. The bottom line: Maintaining a good credit history, and credit score may prove very beneficial to you in securing more favorable rates and policies.

• The bottom line: Credit plays an important role in virtually everyone's life and finances. A favorable credit report, credit score, and good credit habits, could help you save tens of thousands of dollars or more over the course of your life. That's why it is so important to stay on top of your credit by checking your credit report and credit score, and monitoring your credit on a regular basis!

The Importance of Establishing Credit

2. Another way to establish credit is to take out a personal loan. Keep in mind that this will involve cost, because loans require interest payments. However, even a small personal loan can help a person establish credit. It may be necessary for you to secure the loan with funds that you have on deposit at the bank, or by personal items you own, such as a car. Once a loan is approved, make sure all payments are made promptly.

3. You could also ask a friend or family member who has good credit to cosign a loan on your behalf, which means that he or she shares liability for the loan with you.

4. You can also apply for a credit card. However, make sure you clearly understand the terms of the card. For example, how long is the initial grace period or the time you have to pay the current balance in full before finance charges are added? Is there an annual fee or other fees that go along with the credit? If you carry a balance, how will finance charges be calculated?

5. If you have difficulty being approved for a major credit card, you may want to apply for a "secured credit card". With a secured credit card, you will deposit an initial amount of money with the financial institution to "secure" your card. The amount of money you pay to secure the card will normally determine your "credit limit" for the card. If you make your "secured credit card" payments consistently on time, your initial deposit normally will be returned to you, and your credit limit may even be increased. When applying for a "secured credit card", make sure that the bank will be reporting your account and payment records to the credit bureaus. This is important, as your intention is to demonstrate your good credit habits to the credit bureaus to build up a positive credit history and achieve a positive credit score to benefit you in the future.

6. You may also apply for a department store or gas card. These cards are typically easier to obtain than major credit cards. Make sure you clearly understand the terms for these cards, and also make sure that you make your payments on time.

7. Credit Patience is a Virtue. No matter which method or methods you use for establishing credit, understand that achieving good credit and maintaining good credit is a lifetime pursuit that can pay big dividends over your entire life. Don't "over-apply" for credit anywhere and everywhere. Keep balances low and under control and make your payments on time. Don't become a "credit captive", forced to spend a years and years paying high interest rates to financial institutions. It's your money, put it to work to secure your financial future!

Good Credit Habits

2. Limit the amount of money you borrow to what you can afford to repay. Sounds like an obvious and simple principle? Sure, but it's where countless consumers get into trouble. Take on too many loans, too many credit cards, or high interest rates – and before you know it, you're in trouble. You're behind on your payments, penalties and late fees are adding up, and a major portion of your income goes to servicing your debt, instead of securing your financial future.

3. Limit the total number of credit cards that you maintain.

4. Don't "over-apply". Applying for too much credit, or too many credit cards at the same time is not a good sign to lenders.

5. Use credit responsibly by maintaining a modest level of credit accounts in various categories: Retail accounts, installment loans, mortgage loans, finance company accounts, etc.

6. Shop around for the best credit terms! Companies want your business. Even if your credit is less than perfect, very competitive rates still may be readily available to you. You can potentially save yourself a lot of money if you shop around for the best deal. Secure the best deal possible, then maintain a strong record of on-time payments!

7. Stay on top of your credit! Check your credit report, your credit score, and monitor your credit information on all three credit bureaus on a regular basis. The only one who knows if the information in your credit report is accurate is you! So, it's up to you to make sure the information in your credit reports is accurate. It's a very small price to pay to potentially save tens of thousands of dollars or more!

How Do Banks and Lenders Look at You?

What's really at stake when you apply for financing? Essentially two things:

1. Whether you get approved for the financing or loan that you are seeking, and

2. The credit terms you receive, or put another way – how much interest you are charged. This is what could cost, or save you, thousands of dollars! So how do lenders make their decision on whether to approve your application and what terms to offer?

Basically, they rely on the information you provide to them – and in many cases, this may be limited to your personal information, banking and account information, and the information contained in your credit report, and your credit score.

• Your Amount of Outstanding Debt – How much debt are you carrying? This accounts for roughly 30% of your credit score. Typically, debt balances that are in excess of 50% of your credit limit will have a negative effect on your credit score. If you maintain considerably lower balances (up to 30% of your available credit), this should have a positive effect on your credit score.

• Your Length of Credit History – Lenders typically look favorably upon individuals who have a credit history that is well established. Although this only accounts for roughly 15% of your credit score, it still plays an important role in forming your credit score. This may mean that you do not want to close an old account, especially if you're getting ready to apply for a loan. By closing an old account, and reducing the amount of credit history demonstrated on your credit report, you could negatively impact your credit score.

• How Much "New Credit" Do You Have? Applying for too much "new credit" can harm your credit score. This "new credit" category accounts for roughly 10% of your credit score. When you apply for credit and a business checks your credit score, this can cause a "credit inquiry" on your credit report – which can lower your score slightly. This is termed a "hard inquiry". Too many "hard inquiries" within a short period of time can be a sign to lenders that you are overextending yourself by taking on too much credit. It is important to note that when you check your credit score, or you receive pre-approved offers in the mail, the inquiry that results is termed a "soft" inquiry – and will not lower your score.

• What types of credit do you use? This accounts for roughly 10% of your credit score. Do you have a balanced mix of loans (mortgage, auto, etc) and credit card (retail) accounts.

7 Steps You Can Take To Help Improve Your Credit Score

1. Pay your bills on time. Even if pay the minimum amount due, it is important to pay your accounts on time! Your payment status plays a big role in determining your credit score.

2. Avoid using too much of your available credit! Scoring models consider lower balances to be a positive factor. When you are "maxed out", using virtually all of your available credit, your score can be adversely affected.

3. Pay down your debts! Again, the more debt you pay off, the more available credit you will have and this will reflect positively on your credit score.

4. Try to keep your new applications for credit at a minimum. Too many new applications for credit over a short period of time can significantly lower your credit score. This could be especially damaging to you, if this occurs at the same time that you are looking to finance a new car, or taking on a new mortgage!

5. Be careful about closing your old accounts! Even if you have an old account that you've forgotten about, and not used for a long time, you should think twice before closing it. Why? Old accounts can help your credit score, because they demonstrate how long you have used credit – and scoring models factor this in to your credit score. By closing an old account, you may be negatively impacting your "length of credit history". Even if it seems like a good idea to close older, more established accounts to consolidate your balances, you could very well be lowering your score by reducing the credit history you present to lenders. Closing old accounts can also reduce the overall amount of available credit that you present to lenders.

6. Compare your credit reports from all three credit bureaus. Because there are three separate credit bureaus that maintain your credit information on file, and companies where you apply for credit often use separate credit reporting agencies, you should make it a habit to check your credit reports from all three credit bureaus. You can do this once each year for free from each credit bureau at www.annualcreditreport.com. For your convenience, you can also get a 3-1 Credit Report that provides a side-by-side comparison of all three of your credit reports: Equifax, TransUnion, and Experian.

7. Monitor your credit reports on a regular basis. Credit Reports and credit scores are changing on a regular basis – as new information is filed. Not only do you want to make sure your credit reports are accurate to make sure you get the credit you deserve, but monitoring your credit can also help provide you with a "first line of defense" against identity theft. For example, if someone else opened up a credit card account in your name, monitoring your credit on a continual basis could help you discover this sooner, rather than later – especially if a new credit account that you didn't open appeared on your credit report. Should you discover information on your credit report that you believe to be inaccurate, you have the right to dispute the information. You can do this by writing to the appropriate credit bureau at the addresses below, or you may go to the appropriate website for each bureau and file an on-line dispute form. It is important to monitor your credit reports on a regular basis because errors in your report may lead to lower credit scores.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies - Equifax, Experian, and TransUnion. This free credit file can be requested through www.annualcreditreport.com or by contacting the companies directly by phone or by mail as listed below.