With the start of the New Year and the approach of tax filing season, it is the perfect time to evaluate your financial condition and making sure there are no signs of identity theft, begin planning to improve your credit history, and correct errors. For millions of Americans this means looking back at what was an extremely difficult year and half. The economic recession led to many black marks on credit reports because of foreclosures, late payments on credit cards, and loan defaults.

Unfortunately there are also millions of people right now who are facing collection agency efforts to collect past due funds. Businesses are making use of collection agencies sooner than they did in past years as the number of late payments and defaults rise. Though the law prohibits the abusive actions they used to be known for utilizing, collection agencies remain persistent and unrelenting in their demands for payment.

There are many reasons beyond checking the status of defaults on debt for verifying your credit history. People who have changed addresses sometimes fail to get statements and notices from debtors. Right now credit card companies are busy changing their interest rate and fee policies ahead of the implementation of the Credit CARD Act that places limits on these activities. One late payment is all it takes to see your interest rate double or triple and to be charged an exorbitant late payment fee. The fees for over-limits are skyrocketing too.

For all these reasons, now is the time to review your credit report. Each consumer is allowed to request a free credit history from one of the major credit bureaus each year. With the credit history you can check for the number of late payments, closed accounts, unauthorized use of your name and social security number to obtain credit, and outstanding balances compared to available credit. Any questions you have should be directed towards the company which means making a telephone call or writing a letter.

The credit history is a snapshot you can use to look for errors and identity theft. It is not your credit score though. Many consumers don’t understand this and are surprised they are unable to get their credit score until they pay a fee. The law only says you can get a free credit history or credit report.

There is only one place to go to collect your free credit report. Consumers should go to AnnualCreditReport.com and request the report. In some cases, you will be asked to download a form from AnnualCreditReport.com for completion and mailing. The site will ask you a couple of questions that you should be able to answer to confirm your identity. If your answers do not match what the site expects as the correct answer then you must mail in a form with proof of identity to get your free credit report. The fact you cannot answer the questions as expected does not necessarily mean there is a problem. Companies (like mortgage companies) are constantly merging and being bought out, and you may not be aware the name has officially changed for example. So don’t panic if the website asks you to download and mail in a form.

You can also call (877)322-8228 and request your free credit report.

One of the advantages of requesting your free credit report through AnnualCreditReport.com is that you will not be asked to buy any other services or products.

The New Year is the perfect time to get your free credit history and start the year fully informed about your credit status.

Can you say how one credit score is different from another? You may know the number, but now you are about to learn what that number means.

720 And Up

A credit score of 720 and up is good news. You’ve taken great care of your credit. You will be able to get your hands on the best lending rates and you will be able to borrow large amounts. You may even be permitted to borrow in excess of 80% of the total value of your home.

More than that, you may not even be required to purchase private mortgage insurance.

You will also be able to get fantastic deals on credit cards. Shop around. With a credit score in this range you should be able to secure an interest rate that is well below the norm.

Between 675 And 719

When you are in this range, you are no longer the most favorable borrower but you’re still in pretty good shape. You will not be getting your hands on the best rates anymore but you will be able to find some good deals. Finding a loan should not be a problem. You are going to be a step below those who find themselves in the top category but you are still in a position to get what you want and to do so while receiving good deals.

Between 620 And 674

Now you are moving down the credit score food chain. No longer in the upper categories, you now find yourself amidst the below average credit score holders. This is where the number of options available to you will begin to dwindle to some extent.

Odds are, you will be paying a premium on any loans that you acquire as well. You will have to work harder to get loans and credit options that are not as good. You may be required to furnish more documentation to prove your viability as a borrower.

This is not a terrible position to be in. From this vantage point, you can see better credit scores and start working you way back into the good graces of credit. Demonstrating your commitment to improving your credit score will help you to secure better credit opportunities in the future.

620 And Under

This is the credit score range that can make life difficult. You are not exactly an appealing borrower at this point so you just need to do the best you can with the options you are offered. With a credit score that is this low, you are going to pay more even if you are approved for loans or other forms of credit.

Understanding what your credit score means is essential. You want to know the advantages of your credit score or the obstacles that may come along with it. Understanding the effect that your credit score will have on your life may inspire you to improve it too. At the very least, you will know where you stand.

What You Will See On Your Credit Report

You will see an assortment of information on your credit report. It will begin with some of your basic personal information. This will include your last three addresses. You will also be looking at a full list of any businesses that have run credit checks on you as well as a comprehensive list of all your credit accounts. Your credit report is a general overview of your credit history. Now you need to know exactly what to check section by section.

Basic Personal Information

You just want to make sure that the names and addresses listed on your account are correct and up-to-date. Mistakes in this information could indicate that a simple error has been made or that someone is using your credit accounts for themselves. Just make sure all the information is accurate and current.

Credit Account Information

The information for each of your credit accounts will be listed here. You will need to review the balance for each account, when the account was opened, and the credit limit. If you had any late payments then the details will be listed. If you see any late payments that were, in actuality, not late then you will need to follow up on them.

If you see any suspicious activity in any of your accounts then go back and see if the activity really is fraudulent. If it is then you will need to take action immediately. You never know when someone could be taking advantage of your credit accounts for their own financial gain. Checking your credit report is one way to get wise to the situation.

Credit Inquiries

This section, clearly, lists all the inquiries made regarding your credit. It gives you a chance to see who received your name and credit information. This section will show you a record of all the times that you applied for new credit or when your credit was checked by others such as potential employers or insurance companies.

A Basic Overview Of What To Check

In short, you will just be going section by section and scrutinizing all the details to make sure that they are correct. It is not a difficult process usually. It just takes some time. Doing so can help you to rectify any genuine clerical errors that were made on your credit report or any fraudulent activity that is revealed on this report. Your credit report is just a tool for you to make sure that all your credit information is listed accurately and so that various businesses and agencies can determine if you are a suitable candidate for credit or other opportunities.

Your credit report is in a constant state of flux because new credit information is always finding its way back to credit bureaus. One small mistake or faulty bit of information can have dramatic consequences. This is why you always need to know what your credit rating is and that it has been calculated with accurate information.

You have heard all the typical ways of approving your credit scores at least a hundred times but these are not the only steps you can take to increase your credit score. Take a look at these new ways to improve your credit score. They could make all the difference.

Ensure That Credit Bureaus Are Aware Of Your Credit Limits

Most people assume that credit bureaus have all the information but this is not always true. Some credit card companies neglect to submit your credit limit along with the rest of your relevant credit information.

This could cause problems for you even if you do not have any credit problems to speak of. Without your credit limit as a reference point, potential lenders and others who check your credit score could be misled.

A high balance on a credit card is a relative thing. For example, $1,000 may be a high balance for a credit card with a credit limit of $1,200 but not for one with a limit of $10,000. If you take the time to make sure that each of your credit card companies reports your credit limits then your score will accurately reflect your situation. This can improve your credit score instantly.

Make Sure That All Your Positive Past And Current Credit Is Represented On Your Credit Report

You have taken the time to maintain your good credit but your credit report may not reflect this. Sometimes not all of your past and current credit information makes it onto your credit report. If these missing accounts of your credit history are positive and are omitted then your credit score may be lower than it should be.

The way to fix this is to request a copy of your credit report and to review it. If you find that information is missing then you will need to contact the appropriate lenders to ask them to submit this information to the credit bureaus. You also have the option of contacting the credit bureaus directly with documentation proving that your good past credit accounts exist. This move allows you to benefit from all of your good credit history. Without the benefit of all your good credit, any credit mistakes you have made will adversely impact your credit score more than they should.

Don’t Add Or Close Accounts Without Considering The Effects

You do not want to make these changes without thinking them through first because they could lower your credit score instantly. Applying for numerous new credit accounts can lower your credit score all on its own. This is why you never want to apply for new credit accounts unless they are completely necessary and you have weighed the pros and cons of this action.

Likewise, you don’t want to close credit accounts. This will lower your credit score by shortening your overall credit history and lowering your available credit. These tips are more about protecting your score but a credit score saved is a credit score earned.

Everyone can stand to know how to improve their credit. It will come back to haunt you if you do not maintain or regain a good credit score. Use these new ways to improve your credit score.

You do not really have the money but credit can carry the burden of extra bills and allow you to put off dealing with expenses until a later date. Some credit missteps are harder to avoid than others, however. Here are 3 easily avoidable credit pitfalls that you can familiarize yourself with and never have to point to again as your reasons for your credit problems.

Credit Scams

There are all kinds of credit scams out there. You can find them online, on the phone, or even in the mail. Scam artists will do whatever is necessary to get your credit card information so that they can win some free money courtesy of your credit cards. You may believe that such scams are easy to avoid but these scam artists are becoming more creative every day.

These days, credit scams and credit fraud are so prevalent that scam artists are using fraud protection services as a cover. They often contact unsuspecting individuals under the guise of fraud protection services just to get credit card information. They will tell a credit card holder that fraudulent charges have been made on an account and that they need to confirm certain account information. It is when the cardholder, thinking they have already been the victim of credit fraud, reveals this account information that the credit fraud actually occurs.

Co-Signers Who Don’t Pay Up

Be careful whenever a co-signer is involved. Friends, family members, and even spouses seem like ideal candidates for so-signer agreements but your name will be tied to these debts until they are paid off. While you want to help out those closest to you, having your name attached to these accounts if they are not paid off can be a major blow to your current credit rating and to your ability to obtain more credit in the future.

Sometimes these co-signer problems cannot be avoided or it is too late to avoid them. If this happens then you want to do whatever is necessary to handle or close these accounts. Know that your credit will be vulnerable until you do.

Using Credit To Live Beyond Your Means

This is the oldest credit problem story in the book. People use credit to spend more money than they have and, unsurprisingly, they have trouble when it comes time to pay off this debt. Spending more money than you have to maintain a lifestyle you cannot afford is how crushing debt is born.

Keeping up with the payments on overtaxed credit accounts is bad enough but sometimes unfortunate circumstances make the situation impossible. You could lose your job, the one that did not pay enough to maintain your lifestyle, and still have all the payments without your main source of income to keep the wolves at bay. While you could not afford this life before, now you cannot even begin to pay for it.

These are 3 easily avoidable credit pitfalls. Credit scams, delinquent co-signers, and a lifestyle that you cannot afford are all ways to quickly amass poor credit scores, large amounts of debt, and some bad times. These situations can be avoided if you keep an eye out for them and think about the potential consequences of your actions.

How Could Someone Not Know They Have Bad Credit?

In a perfect world, everyone would order their credit reports on a regular basis and would review them thoroughly. This is not a perfect world so many people do not do this. Many people do not check their credit scores and instead just assume that their credit is good or bad based on how they feel about their credit history. This is, suffice it to say, not the most accurate way to determine your credit score.

Because of these assumptions, many individuals have no real idea what their credit score is. This is how someone could have bad credit and not know it. It is good to note that even if someone has an impeccable credit history then their report could still be bad. If you never check your credit report then you will never know if any mistakes have been made on it. You may never have made a mistake with your credit but your credit report may not reflect that.

It Was Just One Time… Well, Maybe Two Times…

Maybe you forgot that you paid a few bills after they were due. Perhaps you even forgot to pay a bill entirely. It is possible that the bill you owed was passed from the company that you owed to a collection agency that left a bad mark on your credit report. Ideally, this collection agency would have gotten in touch with you before placing any judgement, but sometimes they cannot get in touch with you.

This is one specific way that your credit report could have taken a major hit without you knowing anything about it. The point is that there are ways that your credit score could have dropped without you knowing it at all. Or it could have happened without you realizing how much of an impact certain circumstances had on your report. You need to know that a bad credit report could happen to you.

How To Avoid Bad Personal Credit

Avoiding bad personal credit is mostly a matter of paying your bills on time and not carrying debt around. In tough times, this may be easier said than done but it is the way to maintain or to regain a good credit score. Being responsible with your credit usage will give you the good credit score you want and all the benefits that come with it.

You will also have to keep track of your credit score by getting regular credit reports. Bad personal credit scores can come from your mistakes or mistakes on your credit report so you have to work to prevent either from happening. And if they do happen, you have to fix them.

You could have bad personal credit without knowing it. Maybe you made mistakes or maybe your credit report is wrong. Either way, you need to take care of it if you want to regain your good credit score.

Does knowing the mistakes that most often lead to these problems protect you from them? Basically, the question is this. Do smart people have credit problems?

Someone Else’s Problem

It is easy to be on the outside looking in and to point out what went wrong for those facing credit problems and mounds of debt. In fact, the causes of the situation and even ways to avoid such situations can seem painfully obvious to the average onlooker. So many people use their credit cards with wild abandon and others just live beyond their means.

If only these individuals would learn not to spend money that they do not have then their finances would never reach a state of ruin. It is too easy to be on the outside looking in and offering these simplistic explanations. There is so much more to the story.

Are Smart People More Prone To Credit Catastrophe?

There is a possibility that those who are well-versed in matters of finance and credit are even more susceptible than those who are not. Some people who know so much about financial matters somehow feel that this knowledge makes them immune to financial mishaps. Sadly, this is not the case.

Think about this scenario in another one of life’s arenas. How much do you know about healthy living? Do you know enough about proper nutrition and regular exercise to lead a lifestyle that promotes optimal health? And do you lead that lifestyle?

Just because you know how to eat in a way that is healthy that does not mean that you always avoid junk food. Just because you know how much exercise you should be getting on a weekly basis that does not mean that you exercise as often as you should. In the same way, many people know how to avoid financial credit problems.

They just don’t.

The issue is that those who know how to avoid the downfalls of poor credit usage might think themselves impervious to financial harm even though they can fall just as easily as anyone else. Knowing how to handle your finances properly is not the same as doing it.

So Why Do Otherwise Intelligent People End Up With Credit Problems?

The truth is that almost everyone understands the basics of properly managing their finances. You do not spend money that you do not have. It is as simple as that. Cash flow issues complicate matters, but it is not just those who have these issues who end up in dire straits.

There are many explanations, actually. People do not want to think about financial limitations. They do not want to face problems as long as they still have credit left. They want to maintain a lifestyle.

It is not that smart people do not have credit problems. They do. They can just explain their personal credit problems in more complex financial terms. It is not a wealth of knowledge or an extensive financial vocabulary that shields anyone from personal credit problems. It is only through doing the necessary budgeting and money management that anyone maintains a bright financial picture. Now that’s smart.

Or does it? Actually, it all depends on how you acquired your business credit.

Setting The Scene

This whole scenario begins with your business. You take out a small business loan to get started on whatever type of business you have decided to embark upon. So far it sounds like it could be a smart move. Opportunities seem limited in the business world for those trying to work their way up the ladder so why not create your own opportunities?

The story continues as you begin your own personal line of business credit and perhaps acquire a few business credit cards to cover any expenses that pop up. Then the economy takes a turn for the worse. Business is bad and soon these lines of credit are pushed to the limit just trying to keep your business going.

It could go so far that you have no choice but to start over and that your business files for bankruptcy. It is not a story with a particularly happy ending, but it is an ending. Or is it?

It’s Not Over Yet

This should be the point at which you begin your new life with the lessons you learned and find a new way to support yourself. Your small business may not have survived the times, but you handled it the best way you knew how. These things happen.

Then collection agencies start contacting you about paying off all those defaulted credit lines and credit cards from your old business. You thought that because it was business credit that you would not be held personally responsible. You could be wrong.

Sometimes to get small business loans, lines of credit, and credit cards you have to use your own personal credit to apply for them. If you do this then you have given a personal guarantee that if anything happens to your business that you will be held personally responsible for its debt.

How To Protect Yourself

The way to protect yourself is to not personally guarantee business credit or credit cards. If you do this then you will be responsible no matter what happens. If you do not want to be personally responsible for your business’s debt then do not give this personal guarantee.

Do not run your business as a sole proprietor. In most cases if you want to obtain access to business lines of credit without providing that treacherous personal guarantee then you need to set up your business as a separate legal entity. This could be a limited liability company or a corporation. You just have to be separate legally.

Whenever you are performing financial transactions or opening lines of credit for your business, never use your social security number. This will give you that personal responsibility that you are trying to avoid. Instead use your business’s Federal Tax Identification Number or Employer Identification Number. These will keep personal responsibility separate from business debt.

Your business credit could hurt your personal credit if you are not careful. As optimistic as you want to be about your business, do not put your own credit on the line if the business does not work out. Knowing this before you start your own business will protect you if your business does not work out the way you hoped.

Certainly they want to own their own homes just like everyone else, but at the same time, they’ve developed an aversion to loans of any sort, afraid that they’ll just accrue more debt and make their financial troubles all the worse.

This is something of a good sign as it shows that such people are taking their financial situations seriously and acting with reserve and prudence. However, they can relax. In today’s mortgage market, there are so many tax and other benefits available to borrowers that the risk of borrowing money on a mortgage are more than offset by the advantages.

When you sign up for a mortgage, you’ll probably get told about a lot of the tax breaks available to you right up front, as more of an incentive to get you to sign up. The most common of these involves itemizing deductions on your taxes.

When you fill out your taxes, consider all the expenses that come along with owning a house, such as repairs and taxes and interest that you pay on your monthly mortgage payments. Such money is tax-deductible, meaning that you cannot be taxed on the money you earned that you put towards those expenses. Oftentimes, you can even find ways to claim other deductions as well, such as repairing your home or making improvements to your property overall. Be sure to do your research into matters like this, and you’ll be surprised at just how much you can save from itemized deductions alone.

In the United States, there’s a program currently running wherein first time home owners can get a rebate to the tune of several thousand dollars. Intended to stimulate the waning housing market, this incentive is helping many people who could not have afforded it otherwise to purchase their own homes, and at the same time, affording them the funds they need to make improvements to “fixer-upper” homes. What’s more, this is not the only program of its kind. Many organization offer benefits to first time home buyers including more relaxed mortgage terms, cash back, and in some instances, even reduced taxes for a certain period of time.

If you’re still worried about taking out a mortgage for fear of going into debt, you must also realize that there are different types of “debt” out there. The kind of debt you accrue by using your credit card to buy a stereo is a far cry from the kind of debt you accrue by purchasing a home.

Whereas the stereo will be outdated in just a few years, your home is something that will increase in value over time, such that if you needed to, you could probably sell your home for profit at a later date. In this sense, the debt is not the same at all; rather than think of taking out a mortgage as going into debt, think of it as making a sound investment in your future; one that you can enjoy on a daily basis in the meantime!

Some strategies that you use to eliminate your debt and help your credit may not be helping if you don’t do them the right way. Here are some tips to make sure that you keep a good credit rating.

Don’t Stop Using Your Credit Cards

This may sound counterintuitive. Most financial advice tells you to cut back on your credit card use as much as possible until you pay off all your debt and to be careful with credit card spending even after you do. While you should be careful when using credit cards, you do not want to stop using them altogether. This tactic does not do you any good.

Your credit score is not improved when you stop using your credit but when you use it well. When you stop using your credit cards completely then the only information that credit bureaus have is old information which may not be the greatest. You want to keep using your credit cards in a responsible way so that your most recent credit history shows how well you manage your finances and your credit specifically. Credit card companies have also been known to close inactive accounts which can hurt your credit score so this is another reason to keep using your credit cards.

Don’t Close Old Accounts

Old accounts, even if you rarely use them, are a good thing. Part of your credit score is based on how long your credit accounts have been open. If you close one then you can decrease the average length of time that your accounts have been open and your credit score along with it.

You want to keep these old accounts open. The best way to ensure that they stay open is to use them at least once every six months. This activity will help to show that you use it enough for the credit card company to keep the account open. As stated earlier, inactive accounts sometimes get closed.

Protect Your Credit Score

Aside from taking the necessary actions to get a good credit score, you also have to work to protect that score. You want to check your credit report regularly to look for erroneous information. If you do not check your credit report for mistakes then they are likely to just sit there and mess up your credit score. Remember to destroy anything with your personal information on it because identity theft can ruin your credit score too.

These tips to help your credit score detail what not to do and how to protect yourself from bad credit that is not your fault. You need to work to maintain your credit. Use your credit cards, keep old accounts open, and protect your credit so that your credit score will be maintained.