Keep A Close Eye On Your Credit Report

Almost everyone knows that they should be regularly checking their credit report. Your historical report of your credit usage and current situation, as well as the historical trend that led up to this point in your credit life is what your credit score is based upon. It is actually quite a bit more complex than that, but those are the factors that to a large extent you have the most control over and you need to watch.

But part of that vigilance is avoiding credit surprises, especially when you have a big ticket item in your sights, such as a new car or a mortgage. The last thing you need to have happen when you are ready to sign on the dotted line and be given the keys to that new car or new house is to find out there is a minor problem with your credit that needs explaining, or even worse, which can sour the whole deal.

In these days of tightening economics, one of the things that is happening is that some credit card companies are lowering the credit limit on some customers. On the surface, that does not seem like it would be a big deal, until you start looking under the hood to find out what that really means for you if your credit card companies do that to you.

One of the major factors that impacts your credit rating is your responsible use of credit. The maximum number of points are given if your payments are on time of course, consistently, and that is followed closely by keeping your outstanding balance to be no more than about 25% or so of your credit limit. If it is less than that, sometimes they determine that you are not using credit enough to really make a determination, and if you are using more than that or even are very close to your credit limit, you get negative points because you do not have credit available for emergencies or contingencies.

Now if your credit limit on a particular credit card is say $3000 and your outstanding balance is around $750, that is 25% of your credit limit and you fall into a very comfortable category. But say that credit card issuer lowers your credit limit to $1500, so that with that same $750 outstanding balance, you are now using 50% of your available credit, not 25%, and your credit score will suffer. Now multiply that same scenario times a half dozen or more credit accounts you may have open, and your credit score could drop a significant number of points almost overnight.

In today's economy, a good credit score is required to get the best lending rates, and what determines a good credit score has actually gone up in recent times. This is particularly true for bigger ticket items such as cars and mortgages. Any lender who is loaning money for something these days needs to assess their risk, and as they continue to raise their standards of what they determine as acceptable risk, it is becoming more difficult to keep your credit score rising to meet those requirements for the point in time where you need to utilize them.

Your best bet overall is to keep a close eye on your credit report so that you know every minute what is being reported there. The majority of consumers have errors in their credit reports, and the only way those ever get corrected is that if you notice the error and report it. When you are in the process of applying for a loan or mortgage is not the time to start working on your credit report; rather, the time to start doing that is way BEFORE you apply for a loan or mortgage so that things can go as smoothly as possible at that point.