An example of good credit is debt that helps you build equity or increase your net worth. For example, Deborah’s student loan is an example of good credit simply because having education generally means that she will eventually have higher earning potential. Purchasing a new home is also an example of good credit because as it increases in value and will add to her net worth.

Bad credits are the ones that negatively impact your financial future. Bad credit is described as financial obligations that last much longer than the item that you purchased. So, if you purchased a computer back in the 1990′s and you are no longer able to use it, that’s considered a bad credit. This also includes debts that have no return toward increasing your net worth.

So, how can someone improve his or her credit?

Maintain a good relationship with your creditors such as paying your bills in full and in on time. Also maintain a strong employment/self-employment history. Read your credit report thoroughly and check for accuracy. Before making a purchase by a credit card or loan, ask yourself whether it is good debt or bad. Will this help to increase or decrease my net worth?

Credit experts recommend that debt should not exceed 25 percent of disposable income. Too much debt can cause one to repay their debts while struggling to maintain living expenses such as food, clothing and shelter. Avoid going into debt by trying to maintain a lifestyle such as shopping binges, expensive restaurants and vacations.

Why is maintaining good credit such a big deal?

Besides being approved to buy a new car or a new house, it is important to maintain good credit should an unexpected event such as job loss or a major medical expense can put you into a financial crisis for one who’s not financially prepared. Having good credit is important in case you have to borrow.

The Good News

Just because someone has bad credit doesn’t mean that they have to stay in that position.
There are many programs to help someone to get out of debt. Having a negative credit history, does not mean a person cannot purchase a nice home, a new vehicle, or start a business. There are many programs that offer bad credit loans made especially for those who have bad credit.

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Here are five simple tips that you can use to raise credit score.

1. Get a copy of your credit report

Obtaining a copy of your credit report is a good idea because if there is something on your report that is incorrect, you will raise credit score once it is removed. Make sure you contact the bureau immediately to remove any incorrect information.

Your credit report should come from the three major bureaus: Experian, Trans Union and Equifax. It’s important to know that each service will give you a different credit score.

2. Pay Your Bills On Time

Your payment history makes up 35% of your total credit score. Your recent payment history will carry much more weight than what happened five years ago.

Missing just one months payment on anything can knock 50 to 100 points off of your credit score.

Paying your bills on time is a single best way to start rebuilding your credit rating and raise credit score for you.

3. Pay Down Your Debt

Your credit card issuer reports your outstanding balance once a month to the credit bureaus. It doesn’t matter whether you pay off that balance a few days later or whether you carry it from month to month.

Most people don’t realize that credit bureaus don’t distinguish between those who carry a balance on their cards and those who don’t. So by charging less you can raise credit score even if you pay off your credit cards every month.

Lenders also like to see a lot of of room between the amount of debt on your credit cards and your total credit limits. So the more debt you pay off, the wider that gap and the better your credit score.

4. Don’t Close Old Accounts

In the past people were told to close old accounts they weren’t using. But with today’s current scoring methods that could actually hurt your credit score.

Closing old or paid off credit accounts lowers the total credit available to you and makes any balances you have appear larger in credit score calculations. Closing your oldest accounts can actually shorten the length of your credit history and to a lender it makes you less credit worthy.

If you are trying to minimize identity theft and it’s worth the peace of mind for you to close your old or paid off accounts, the good news is it will only lower you score a minimal amount. But just by keeping those old accounts open you can raise credit score for you.

5. Stay Out Of Bankruptcy

Bankruptcy is the single worst thing that will destroy your credit score. Bankruptcy will lower your credit score by 200 points or more and is very difficult to come back from.

Once your credit score falls below 620, any loan you get will be far more expensive. A bankruptcy on your credit record is reported for up to 10 years.

The reality of a bankruptcy is it will limit you to high-interest lenders that will squeeze out high interest rate payments from you for years.

It is better to get credit counseling to help you with your bills and avoid bankruptcy at all costs. By getting credit counseling instead of declaring bankruptcy you can raise credit score over a much shorter period of time.

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If the indicator says that you have a high score, this means that you have a stable credit score, if you have a lower score, then it will indicate that you have a bad credit score and will be far more risky to get an approval for loans.

So, if you have a bad credit rating, the first thing you need to do to make it improved is to take care of old debts. By paying all your old debts, this will stop the creditors to stop making bad reports to credit reporting companies.

That is the first thing you have to do in order to stop your credit score from plunging to a more worse than it already is. By cutting the source of negative credit reports, you will be well on your way to get a n improved credit score.

But, paying all your debts does not necessarily mean that you can immediately get good credit rating. You have to realize that this will just stop it from getting any more worse. Your old bad credit score will still be existing. So, obviously the next step would be to begin looking for methods to make some positive reports on your credit score rating.

You can do this by applying for a credit card that is specially designed for individuals who have bad credit rating, such as a secured credit card. You should also begin opening a new savings account or checking account. Always remember that you should pay your balance on time in order for you to establish a good credit report.

Eventually, your old bad credit rating will expire in time. Always keep paying your debts on time and your credit history will look better than in the previous scenarios. However, it will usually take around 5-7 years for your old credit report with negative reports to expire. This is why patience is very essential.

With patience, you will see that in time, your credit score will improve and get rid of those negative reports that you had in the previous years. Always remember to keep paying your debts on time in order to continue in improving your credit score rating.

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There are advertisements both online and off selling books and systems to help you fix your credit problems. It is not uncommon for many of them to make outrageous claims.

The question naturally arises, “Are these sort of claims too good to be true?”

These credit repair companies would love for you to believe that the only requirement for fixing bad credit is time. The reality is quite different. The truth is that time is only one factor but it is not the only factor.

There is a consumer protection law known as the Fair Credit Reporting Act (FCRA). The only negative information which can remain on your credit report is what is not accurate. This means that any negative item on your credit report can stay there if it is true and can be proved to be true. This item presents us with good and bad news.

This is the good news. Through the FCRA you can improve your credit score dramatically. This can be accomplished in a short period of time. This requires a small amount of effort from you.

Now here is the bad news. While the work may take you a small amount of time, it is essential that you have the proper method on how to proceed. This is the crucial point: Most of the courses available on restoring your credit (9 out of 10) will not be helpful at all. The reason for this is that these companies will provide you with boiler plate dispute letters.

These boiler plate dispute letters are nothing more than form letters. The truth of the matter is that credit bureaus and creditors will tend not to take these very seriously.

It is quite true that anything a credit repair clinic can do for you, you can do it yourself for little or no cost. However, and this is the key point, to be successful it is imperative that you acquire the most recent insider techniques and procedures to achieve the desired results; i.e., improved credit scores.

This includes, but is not limited to, such strategies as proof of contract, constructive notice, challenge of procedure and restrictive endorsement.

This may appear complicated, but in reality they are very simple. These are just a means of communicating. In turn, this is how you exercise your consumer rights. Knowing how to proceed will enable you to get the results that you want and will raise your credit score.

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