7 Steps to Credit Success

Having successful credit is easy enough if you're willing. The hard part for most folks is taking a deep look at the underlying problem - themselves - and taking the necessary steps to fix their credit. There are always those few whose credit report problems are someone else's fault. Well, first thing’s first: take responsibility. Only then can the following seven steps get you where you want to be.

1.) Be sure to check your credit report annually.

Mistakes happen, but it's your responsibility to check them. Better yet, you get one free credit report a year from each of the bureaus. Get a copy of your credit report every four months so that you know what's being reported.

2.) Make payments on time.

This simple statement can impact your score in a big way. Just make your payments on time and you'll be well on your way to success.

3.) It's good to have some credit cards - just don't go overboard!

Lenders like to see that you can manage debt responsibly, so having active credit cards that you use is a great way to show that. While it is financially better for you to pay your balances in full every month, future lenders want to know that you can handle actually having debt as well, so when establishing credit, keep at least one card at 40% capacity for a period of time. This is still low enough that it won't cost you too much in interest and high enough that lenders can see how well you manage your debt.

4.) Don't max out your cards.

Remember, 40% capacity. That means you only carry a balance that is 40% of your credit limit. Maxed out cards tell a lender that you are not very responsible with your debt and are therefore a credit risk.

5.) Don't close out cards just because you don't use them.

This is especially true if it's a card that you've had for some time. Closing out these cards closes out the history on your credit report and can have adverse affects on your score. Keep those credit cards open and stick them in a safety deposit box if you're worried about using them.

6.) Don't open a lot of store credit cards.

Number one, lenders don't like to see too many open lines of credit because that gives you the opportunity to run up a bunch of debt you can't repay. Number two, most store credit cards use finance companies to furnish the credit which looks bad on a credit report. Finance companies are usually affiliated with the "loan sharking" kind and seem like a last ditch effort to lenders. Avoid these if possible!

7.) Consolidate higher interest loans and credit cards to lower interest loans and credit cards whenever possible.

There are still plenty of 0% offers floating around from the credit card companies. If you're carrying a debt higher than about 7% in this current interest rate market, you need to consolidate to a lower interest card. If you've got plenty of high interest loans, consider consolidating them into one loan. Home equities are great for this, but be sure you fully understand the ins and outs of a home equity before you lock into one.