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Credit management means successfully managing your credit by paying your debt obligations on time for the amount required.

How you handle your debt obligations are reported by your lender to credit agencies.

Any time that you fail to make a payment on time may be reported to the credit agencies.

Example:

If you fail to make payment on your credit card or loan within 30 days of the payment due date, your lender may report this to the credit agencies as a 30-day late payment.

Your credit report will then show "1x30", which means that you have failed to make payments "1 time" in thirty days.

If you continue to delay payment past 60 days from the due date, your credit report may show "1x60", which means that you have failed to make payments "1 time" in sixty days.

If you continue to delay payment past 90 days from the due date, your credit report may show "1x90".

If you continue to delay payment, your credit report may show that the account past due has been sent to collection.

So What Does This Mean:

Your credit information is maintained for other parties to review when you make an application for a loan, apply for insurance, and in some cases, seek employment.

Some lenders may not approve your application for credit if your report has any "1X60" or greater on your report. Other lenders may not give your the best interest rate if your report shows any "1x30".

Likewise, employers who see more than 3x30, or 2x60, etc., on your credit report may consider you at risk since your credit history shows that you fail to meet your credit obligations.

That is why maintaining a strong credit report is extremely important.

In reviewing credit applications, lending institutions will review the following information to determine your creditworthiness:

• Your current outstanding debt
• Places and the number of times you have applied for credit
• The kind of credit you have taken out in the past
• Late payments
• Over extension of your credit lines
• Liens
• Garnishments
• Bankruptcy
  

Your outstanding credit report lists any payment delinquencies that you may have had over the past seven years.

You have the right under Federal Law to know what is in your credit report.

While information regarding your credit habits for the last seven years appears on your credit report, no adverse credit information, with the exception for bankruptcy, may be kept on file for more than ten years.

You need a credit history of at least one year to ensure a good credit report.

The credit score estimates your ability to repay a loan as evidenced by your credit history. A lender will sometimes give you a better loan rate based on a good credit report.

There are three major credit bureaus that maintains your credit information. A lending institution may use all three bureaus for credit reviews.

For information about credit bureaus and credit monitoring services, click here

Step 1: Pay Your Bills On Time

Make it your personal goal to pay your credit and other obligations on time and for the required amount each month.

Your debt obligations may include:

• credit card charges
• loan payments
• rent or mortgage payments
• utility bills
• service or product bills
• taxes
• support payments
• other
  

Take advantage of automatic payments and other online bill payment strategies offered by lenders and credit card issuers. This will ensure timely payments.

If you forget to make a payment, act promptly on any notices of non- or late payments. Call the bill servicer to notify them that your payment will be sent immediately.

Do not ignore any creditor notices of non-payment. Contact the creditor to fix the problem.

Step 2: Build a Strong Payment Pattern

Adverse conditions such as late or non-payments are two of the most common items that are reported to the credit agencies.

You can avoid adverse conditions by making on-time payments.

Your credit report will also list all open credit cards and loans, listing the amount borrowed and the amount owned on the account.

Your objective is to build a pattern where you payoff large credit card balances in full each month.

This pattern conveys a sense of responsibility for your debt obligations.

You can build a strong payment pattern by charging everyday living expenses

on your credit card, deducting the charge from your money account, and then paying off the monthly credit card charge in full each month with your money deductions.

You can download FREE an outline plan that describes how to account for everyday purchases. The plan uses rebate credit cards to maximize your rebate options.

Click here to download plan

Important Note: you need to follow these rules before you undertake this credit payment pattern:

1. you must set aside funds for every credit card purchase you make
   
2. you must pay your credit card balance in full each month
   
3. you must have an existing credit line or home equity line (with lower interest rate) to finance large ticket items — never finance purchases with your credit cards

Step 3: Maintain Only a Few Credit Cards

As your credit rating improves, you will soon receive pre-approved offers from credit card companies and lenders with attractive rates and programs.

You should limit your credit to 3-4 cards maximum. Maintaining a large collection of cards can hurt your credit rating.

Step 4: Close All Retail and Gas Cards

Since you maintain 3-4 credit cards (VISA, MasterCard, Discover, American Express, or other), it isn't necessary to hold gasoline cards, retail store cards, and other specialized credit cards. Simply use your credit card.

Again, holding multiple cards can drag down your credit score.

Step 5: Don't Have Too Many Outstanding Loans

Excessive loan balances (especially loans that exceed your Debt-to-Income ratios) can effect your credit rating:

see debt-to-income ratio calculation

Maintaining a good credit rating requires that you reduce your debt holdings by consolidating balances, closing unused credit card accounts, and paying off outstanding loans.

See our debt consolidation module for consolidating credit cards, personal loans and student loans.

Step 6: Avoid Charging Close to Your Credit Line Limit

Using your credit up to your maximum credit line balance can impact your credit rating.

Maximized credit lines (including home equity lines, credit cards and unsecured credit lines) indicate that you are a consumer who borrows willingly. Many lenders consider this a great risk and may not approve you for additional credit.

A good rule to follow is to keep your balances at or below 60 percent of the available credit line.

Step 7: Review Your Credit Report Annually

About 1-in-4 credit reports have errors. Either a payment on a loan amount has not been recorded correctly or another billing company has posted an incorrect non-payment information to your account.

Your credit report also maintains records on your employment, salary, bank accounts, etc., especially the information that you supplied when making a previous credit application.

You should review your report annually for errors and make the necessary corrections as instructed by the credit agency.

Link to: reviewing your credit report

Step 8: Limit Inquiries On Your Credit Report

Every time you apply for credit, seek some kind on contractual service, or in some cases employment, a credit inquiry will be made on your report.

Multiple inquiries over a period of time may impact your credit score.

Models show that multiple inquiries over a period of time indicate an applicant who is anticipating credit problems. So limit credit inquiries when only necessary.

What about having multiple lenders compete for your loan?

Many Internet services and brokers (including our lending network) allow you to submit one form and have up to four lenders review your credit information.

Credit agencies understand that these services may require an inquiry by "multiple lenders" at the same time.

These kind of inquiries, coming from multiple lenders within 20-30 days of each other, indicate that you are shopping for the best deal. Credit agencies will count these inquiries as being only one inquiry. This allows you to shop and negotiate best deal without being penalized on your credit report.