Don’t Forget about Your Credit Health In 2009

We tend to make New Year’s Resolutions to get fit or get out of debt, but few of us make a conscious decision to improve our credit.

Jeff Strain from TheStreet.com estimates that poor credit could cost a consumer over $1 million dollars in extra interest and fees over their lifetime, so shouldn’t this be at the top of your New Year’s list? Improving your credit will take time so a now is the perfect time to get started.

Here are some tips for a better 2009...

1. Review your credit report for accuracy.  This is often the easiest step in trying to manage your credit score.  Request your credit report from AnnualCreditReport.com and then make sure all the bank accounts and financial information are accurate. If not, report it to the appropriate bureau. Also remember that only AnnualCreditReport.com is free, the imitators are not.

2. Know your baseline credit score. Like in a diet, you need to know your starting point. In this case, a credit score is the best metric of your credit health.  Credit Karma is one site where you can access your credit score for free. There are other sites that provide credit scores but most charge a monthly fee. Regardless of the source, you should establish your baseline credit score and start tracking it.

3. Pay your bills on time. Just one late payment can reduce your credit score and affect the interest rates you pay on current and future accounts. Keep accurate records and pay your bills on time. Consider using an automatic payment tool if you need help.

4. Avoid excessive shopping for credit cards. Each time you apply for a credit card or loan there is an inquiry placed on your credit report.  Excessive inquiries for credit look bad and negatively affect your credit score. Research credit cards with low fees and interest appropriate for your credit score before you apply, and please don’t apply on a whim.

5. Keep your old lines of credit and accounts open. A common mistake when starting a new year is cleaning out things you don’t use any more. In the case of an old credit card in good standing, closing the account is often a mistake.  Long standing credit lines demonstrate a history of responsible credit management and has a positive effect on your credit score.   Unless your old credit cards have a hefty annual fee or you have several cards that are with similar length of credit history, try to keep your old account active and always in good standing.

6. Avoid negative records. Collections, late payments, and charge-offs will lower your credit score and could remain with you for over 10 years. Once these marks are on your credit report, only time can remove them if they are accurate so avoid them at all costs.

Remember it takes years to build good credit score but only a few missed payments to destroy it.