Credit 101

Personal finance is becoming more of an obligation than it used to be. It could be the frugal turn the capitalist masses took once the economy trends went negative. Perhaps it was the hype about identity theft and the ensuing fear that followed. Despite the inference you wish to embrace, there is a solitary common denominator: Monitoring and adjusting your financial position is just responsible behavior. If more people keep an eye on their credit reports and checked their bank statements online weekly, it would be much more difficult for identity theft, credit fraud, or rogue charges to occur (Protectidentity.com).

But let's start at the beginning.

A credit rating is not synonymous with a credit report, nor are they disjointed. First off, a credit report for the purpose of financial responsibility should be the focus. The report is a listing of all transactions giving information on how much a person has borrowed in the past and how well they have done in paying it back. The report is used by prospective creditors to determine your risk and whether they should "invest".

This credit history is maintained by credit bureaus, the most used are respected being Equifax, Experian, and TransUnion. The individual borrower is offered one free credit report from each credit agency annually at AnnualCreditReport.com. The problem here is that it's too broad. If there was an issue back in May you might not realize it until October. Then there is the issue of actually reviewing an annual report. Some may feel it too extensive and not review it in full. The status could be highlighted by your credit rating, but it will not enlighten even the savviest creditor to issues or delinquent entries in the report. Multiple reports a year are still a good idea. Click here to grab yours.

The credit rating or credit score is a derivative of the metrics comprising your report. It's a number that indicates your credit risk; what a lender will use to determine your interest rate on your financing. Basically, if you want to know kind of financing you can expect from a lender, look no further. In the US, the rating is made up of 5 categories each contributing to a percentage of your credit score:

35% - Payment History
30% - Debt To Credit Limit Ratio
15% - Length Of Credit History
10% - Types Of Credit Accounts
10% - Inquiries (hard)

The score is a three number scale, 300-900. The higher it is the better. The most common score is generated by the Fair Isaac Corporation; you may know it as your FICO score.

How to Improve Your Credit Score

The simplest and most obviously lecture-like in nature would be "Be more financially responsible". But I'm here to give tips and not sermons. Unlike mom, I understand that we all lead busy lives and it is sometimes less of a priority to make sure the cable company didn't double charge you than it is to watch the Season Finale of LOST. In the spirit of instilling simple positive habits, here are some tips to improving your credit score.

Tip #1
Don't try to outsmart the system. Opening up unnecessary credit cards to boost available credit or closing unused ones to boost your rating is only going to backfire. Keep balances credit cards and other "revolving credit" low. Moving the debt around in a Peter to Paul nature will prove to be more hurtful too in the long run.

Tip #2
Be stingy with new accounts. If you are new to the credit game, take it slow. Opening a lot of new credit lines/accounts in a short time period can reflect poorly (it's only logical, doing so makes you look like you are more likely to default). Closing an account doesn't make it go anywhere. The history stays. If you absolutely have to close accounts, do the youngest ones first. Be aware that doing so lowers the ratio of debt to credit (%30 of score).

Tip #3
Become a deadbeat. No, not literally. This is a term used within the credit card industry to describe people who don't run a large balance if any on their card. Start paying your debt down. No minimum balance for you. Do this for six months time and your "good behavior" will be rewarded. Paying off your installment loans (i.e. mortgage, student loans, auto etc.) is good too, but typically the credit card balance fluctuate the most. The best strategy? Pay down the cards that are closest to their limits.

Tip #4
Check your Score & Report! This does not affect your numbers in any way. To be safe, you should always order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers (i.e. FreeCreditScore.com).

For immediate release

Consumer credit card agreements from more than 300 credit card issuers are now online in a searchable database created by the Federal Reserve Board.

The agreements contain general credit terms and conditions along with pricing and fee information. The database will help consumers compare credit card agreements and find a card that best suits their personal finance needs.

The database will be updated quarterly; the next submission deadline is August 2, 2010.

Not all consumer credit card agreements are available in the database. For example, the Board's recent credit card rules exempted issuers with fewer than 10,000 open credit card accounts from submission because the overwhelming majority of credit card accounts are held by issuers that have more than 10,000 open accounts.

Additionally, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 requires credit card issuers to post account agreements on their websites as well as to make consumer's individual credit card agreement(s) available to them upon request.

More information on the Board's credit card rules can be found in the online publication "What You Need To Know: New Credit Card Rules," at: The Federal Reserve's Credit Card Rules Page.