Your credit can determine what you can buy, what type of car you drive, your insurance rate and even where you can live and work. Therefore, it is important to build and maintain the best credit history possible. Having poor credit, little or no established credit or unresolved disputes with creditors can affect your purchasing power and your ability to get a loan.

Many people fall into debt at some point in their lives. And while some situations are unavoidable, there are ways to keep your credit spotless from the start.

Your credit should be an "A" if you have five or six solid pieces of seasoned credit (i.e., auto loan, mortgage, credit card, etc.) that are at least two years old and indicate no late payments. Many underwriters understand that your credit can't always be perfect; therefore they can usually excuse a few minor mistakes. These may include up to two credit card payments that were 30 days late, or one installment payment (auto or student loan payment) that was 30 days late. However, no payments of any kind should be more than 60 days late, and no mortgage or rent payments should be late at all. There should also be no outstanding debts resulting in judgments or liens.

Building great credit isn't that difficult, especially if you know what you're getting into from the start. In fact, it takes only a few simple steps and some smart financial decisions to make sure your credit remains in solid standing.

Checking & Savings Accounts
Try to open both accounts, even if your balances are low. Lenders will look for a financial history and having both of these accounts will improve your credit rating. Naturally, the more you have in savings and investments, the better your chances are for a loan approval, but keep in mind that it's okay to start small.

Stable Address
Keeping the same address for two or more years will show lenders that you have stability in your life. This makes you reliable and less of a credit risk, increasing your chances of getting a better loan. College students, due to their frequently changing addresses, are given a little more latitude.

Income
Lenders carefully weigh how much you earn and how long you have been with your present employer against how much you owe (your debt ratio). If your debt ratio is too high, it may negatively affect your loan application. However, if you have proven that you can make your monthly payments on time, lenders will usually be more accommodating to your financial requests.

Credit References
If you have open accounts (i.e., credit cards, student loans, mortgage or rent), it's vital that you make your payments on time, preferably in full each month.

Credit Cards
Be aware of the risks involved when you use credit cards. Don't accumulate too many - start small. Begin with a retail card and pay off the balance in full each month. As you begin to demonstrate your financial responsibility, apply for a major brand name card or a secured card.

Late Fees
Late fees are important to avoid and doing so is an excellent method for increasing your credit standing. Late fees are becoming more and more popular and can cause your effective interest rate to rise dramatically. Be sure to read the fine print and ask your card issuer questions.

Credit Limits
Don't let your credit limits get too high because a large line of available credit means you are capable of spending a great deal. It may sound impressive to have a high credit limit, but it can actually put you at risk. Even if you have a stable credit history, lenders may fear you will overspend and be incapable of handling your debt load.

To increase your credit reputation, consider closing unused accounts and requesting that creditors lower your credit limit. Make certain your credit report shows that you asked for these changes so other lenders will know that you didn't have payment problems.

Credit Inquiries
An inquiry is generated when a creditor obtains your credit report (such as when you apply for a credit card). Inquiries typically remain on your credit report for two years.

Therefore, by running unnecessary reports, you send out a signal that others are looking into your credit history. Try to avoid unnecessary credit checks. If a large number of inquiries occur in a short period of time, lenders may think that you either are overextending yourself by taking on more debt than you can actually pay back or are applying for more credit because of financial difficulty.

Judgments & Liens
If your property has a lien on it (which can legally be sold to another party) or if a collection agency has contacted you, it is likely you will be considered a high-risk borrower.

Want to learn more?

Cleaning Up Your Credit
Financial Partners understands that not everyone can have perfect credit. But if for some reason or combinations of reasons you have fallen behind on some bills or loans, or your credit history shows a foreclosure, bankruptcy, auto repossession, or other types of bad debt, there are ways to clean up your credit standing. First, let's determine if you have credit problems that may need some fine-tuning.

What is less-than-perfect credit?

Most lenders consider you a higher credit risk if your credit report suggests any of the following:

• Inability to follow successful financial behavior


• External events that created financial stress, such as losing your job


• Lack of knowledge about financial and credit matters


• An insufficient economic cushion due to a lack of savings

Or if you have any of the following on your credit report:

• Revolving credit (credit cards): any payments 60 days or more past due and more than two payments 30 days past due


• Installment credit (auto loans): any payments 60 days or more past due and more than one payment 30 days past due


• Housing debt (mortgages and rent): any payments past due.

In all categories, all late payments must be explained when applying for new credit.

Some other things associated with credit problems include:

• Recent credit inquiries


• Overextended credit


• Paycheck garnishments


• Liens


• Bankruptcy

With all the bills you have each month, it's difficult to keep track and make sure they are all paid on time. There are many reasons people fall into debt, but there is no reason to stay in debt. With dedication and patience, you can get control of your finances and your future.

If you fear your credit rating has slipped due to financial difficulties, here are some tips to help you get a fresh start:

Don't ignore credit problems.
If you fall behind in payments or have difficulty meeting the necessary payment amount, talk to your lender. Many will listen and help you arrange a solution. The sooner you face it, the more lenient most lenders will be, and the sooner you can accomplish your financial dreams.

Check your credit report.
It reflects your financial behavior and is therefore used in the loan approval process. Get a copy of your report to accurately assess your current credit file. Make sure the information listed is accurate and up-to-date, and correct any errors you may find. Strengthen your credit report by adding any additional information that can enhance your stability (i.e., if you have lived or worked at the same place for a length of time) and show the ability to make payments on time. If you've amassed bad debt due to a unique situation, you may write a 100-word statement explaining your circumstances and send it to the credit bureaus. They will add it to your file.

Pay more than the minimum.
A minimum payment is usually 2-3% of the credit card outstanding balance. Instead, pay as much as you can each month. Create a budget and stick to it. Cutting back even just a little bit will help you save hundreds, or maybe even thousands, in interest payments alone. Plus, you will get out of debt and on with your life faster.

Avoid additional credit inquiries.
An inquiry is generated when a creditor runs a credit report for you (such as when you apply for a credit card). Inquiries typically remain on your credit report for two years. Therefore, by running unnecessary reports, you send out a signal that others are looking into your credit history. If a large number of inquiries occur in a short period of time, lenders may think that you either are overextending yourself by taking on more debt than you can actually pay back or are applying for more credit because of financial difficulty.

Don't max out your credit cards.
The ratio of available credit to your total credit balance is very important. Your credit limit is based on your income, your current debt and your credit history. Be familiar with this amount and keep your spending beneath it.