How to improve your credit rating

Credit cards are a wonderful convenience. Thanks to them, you don't have to carry cash or fumble with checks when you make a purchase. Instead, you can just hand over that small piece of plastic and it's yours. The best part is if you manage your credit well, you can build a strong credit record. A strong credit record will in turn enable you to buy a house or a car.

However, for many, credit cards are a little too convenient. When you don't have to lay out cold hard cash, it's easy to live above your means and abuse your credit. No one extends the credit required for a mortgage or a car loan to a person with a poor credit score. Lots of people don't learn this lesson until their credit is shot and they're stuck paying off years of accumulated debt. Sound familiar? Worried you're doomed to a life of apartments and second-hand cars? Not necessarily.

You can repair your credit.

The first and most important step towards healthy credit is to make sure you pay all bills on time. Outstanding bills are noted on your credit report and will count against you. By paying bills before the due date, you are ensured a more positive rating.

But let's be realistic - everyone has a setback. What happens if you can't make a whole or even part of a payment for one month? The worst thing you can do is avoid the problem. Never put off a bill to the next month if you're short on cash. Instead, contact your creditors and explain the situation. In just about every case, they will work with you to reach a compromise. For instance, they may lower your minimum monthly payment.

Don't let a bill slide 60 days past the due date. Creditors don't always report accounts that are at 30 to 40 days overdue. After 60 days, however, there's a good chance you'll be ratted out and the delinquent payment will be recorded in your credit history.

It's not necessary to cancel or consolidate all your credit cards. Creditors want to see open accounts, used and paid for in a timely manner. An active credit card with low balance, paid on time, builds more credit than a cancelled or even unused card.

So, keep balances low. First of all, they're easier to pay off, secondly, low balances show potential creditors you're a safe bet since you're not constantly maxing out your credit cards. If you can manage to be conservative about your spending habits, your many credit cards will work in your favor.

If you have too many credit cards and want to avoid temptation, cancel an account or two. Don't do this just before applying for a loan; creditors like open accounts more than cancelled ones.

Check your credit report every six months to a year. Give it the scrutiny it deserves to ensure there are no mistakes. Errors, even those you don't know about, can lead to bad credit. If there's a discrepancy on your credit report, correct it immediately.

Don't move debt around from card to card. Pay off each account in a timely manner. Moving it around or constantly transferring balances only puts a band-aid on the problem. Potential creditors know all the tricks. You can't hide outstanding balances in other outstanding balances.

If paying off debt has become a serious issue, meet with a credit counselor. Do your research and make sure you're seeing a legitimate, reputable counselor. There are a lot of scammers out there, especially on the Internet, who will take your money but do absolutely nothing to help your cause. Check with the Better Business Bureau and do a thorough search. A true credit counselor negotiates between you and your debtors to work out an affordable solution for all involved.

Once your credit score is within the acceptable range be sure to use credit wisely. Pay your bills on time and don't let your credit cards and loans escalate out of control. To do so can mean the difference between owning a home and renting for the rest of your life.