Improving Your Credit

Whether you need to rebuild a damaged credit history or simply maintain your solid rating, here are some things you can do to achieve your goal.

Check your credit report for errors
Your first step is to make sure that your credit report is accurate.  Balancing out a negative entry with consistent payments takes time and effort — getting rid of an incorrect entry is much easier, and can make a big difference in your credit score.  Here's how to check for and correct errors:

• Order a copy of your credit report from one or more of the three major credit bureaus. 
• Review each account on your report to make sure it actually belongs to you, or did at one time.
• If an account that you no longer have is listed as open, contact the creditor and ask them to report it as closed. 

If an entry is inaccurate, ask the credit bureau to investigate.  They should give you a response within 30 days. 

Change the way you think about credit
Having credit cards and loans that you pay regularly is a good thing in the eyes of lenders.  At the same time, having credit available often brings the temptation to buy things you can't really afford. The key to good credit management is in finding a comfortable middle ground.   

To guard against overspending, try to think of credit as a tool that gives you more financial freedom — not more stuff.   

Consolidate your debt
If you are overextended with credit and living month-to-month, debt consolidation might make your payments more manageable.  By paying off multiple credit accounts using a refinance or home equity loan, you can take advantage of three valuable benefits:

• Simplicity.  Instead of a steady stream of bills in the mail — each with a different payment amount and due-date — you receive a single statement each month. 
• Lower payments.  Because they are secured by your home, home loans generally carry lower rates than most other types of credit.  That means you'll have lower monthly payments and a chance to put money into savings.
• Tax savings.* Unlike credit cards and installment loans, interest on home loans is usually tax-deductible.  And because monthly payments at the beginning of the loan term are mostly interest, you could enjoy substantial tax savings early on.

* Ask your tax advisor about the deductibility of mortgage interest.