If you struggle with bad credit, you are not alone. According to the credit rating agency Fair Isaac, more than 70 million people in the U.S. have credit scores low enough to qualify them as subprime borrowers. Because people with bad credit typically can’t get approved for prime credit cards, they instead often turn to the so-called subprime credit cards when they want to apply for a credit card.

Subprime credit cards, or unsecured credit cards as they are also called, have met with much criticism because they come with very low limits, as low as $250, and they charge hefty fees for the services they offer. The new CARD Act of 2009 does put some curbs on the fees that subprime cards can charge by restricting subprime card issuers from charging more than 25% of the credit limit the first year, once the new rules step into effect in February of 2010. However, don’t expect subprime credit cards to become more reasonably priced any time soon. There are plenty of openings for subprime card issuers to continue to charge high fees to card holders.

So, are credit cards for people with bad credit worth the high costs? According to one study, if your aim is to improve your credit score, yes, they are. The study was performed by the credit bureau TransUnion, which was commissioned by Citizens for Equal Access to Credit to conduct a study of 365,000 subprime cardholders over a two-year period.

The study found that low limit credit cards can be an effective way for people with bad credit to rebuild their credit, as long as they pay their card on time. During the two-year period, 37% of the subprime cardholders included in the study saw an increase in their credit score. For about one out of five subprime cardholders, or 17%, the increase in the TransUnion credit score was 40 points or greater. Almost 20% of the cardholders who had a subprime score increased their score to near-prime, prime, or above prime credit score over the 24 months of the study. In addition, 28% opened a prime credit card with a credit limit of $1,000 to $2,500+. Just as encouraging, 58% of the study participants received a promotional offer for a prime credit card during the last twelve months of the study.

Proponents of low-limit credit cards have long argued that they are worth the high costs because without them, millions of Americans wouldn’t be able to get a credit card and begin to increase their credit score. The TransUnion study indicates that low limit credit cards may indeed be an effective way to begin to build or rebuild credit.

Of course, graduating to a prime credit card with a higher credit limit presumes that you follow the basic guidelines for increasing your credit score. The untold story of the study lies in the 63% of participants who either stayed at the same credit level or decreased their credit score. Indeed, more than half of the participants, or 52%, actually had their credit adversely affected, because they had one or more payments more than 90 days late over the two-year study period.

The study says nothing about whether that was because participants didn’t make good on charges they had made, or whether it was because they didn’t realize the magnitude of the fees that come with subprime credit cards and refused to pay these. At any rate, the large number of people defaulting on the subprime credit cards underscores the importance for consumers with bad credit to be well educated about what it takes to improve credit using an unsecured credit card.

For tips on how to qualify the fastest for a prime credit card, see Bad Credit? 5 Tips to Work Your Way up the Credit Ladder.

Personal finance experts generally advise against closing credit cards, because reducing the total line of credit available to you may hurt your credit score. However, according to a new study by FICO, having a lower total revolving credit line may not necessarily affect your credit score. Credit scores will only suffer under some circumstances, for some types of cardholders.

Before going into the results of the study and what they mean for cardholders, let’s take a quick look at why lower credit limits could lead to a lower credit score. The total credit limit affects a vital part of the credit score, known as the credit utilization ratio, that is, the percentage of the available credit used. Most experts recommend keeping the utilization ratio well below 30% to avoid your outstanding credit card debt from pulling down your credit score.

For example, if your total revolving credit on all credit cards is $10,000 and you carry a $3,000 balance on your cards, you credit utilization ratio is 30%. Now, if your card issuer cuts that $10,000 limit by, say $5,000, the credit utilization ratio instead will be $3,000 out of $5,000, or 60%, high enough to pull down your credit score.

Because credit card companies have slashed card limits for millions of consumers over the last year, a large question has been the degree to which this actually did affect the credit scores of those cardholders. According to the new FICO study, it does, but not as much as one would think, and not necessarily in the direction you would think either.

The study looked at the credit score of about 33 million cardholders, who had their credit limits reduced between October 2008 and 2009. FICO focused on an estimated 24 million consumers whose credit card limits were not reduced because of adverse risk triggers, such as late payments late or missing payments, high credit card balances, or a high credit utilization ratio. The credit limits of these cardholders were mainly cut because of inactivity as part of credit card companies’ efforts to cut back their revolving credit exposure.

The cardholders in the study group all had high credit scores, with most scoring around 760 on the 300-850 FICO score range. Most carried very low balances on their credit cards, and as a result, their credit utilization ratios were very low. The credit limit reduction averaged $5,100, which on average was 14 percent of this population’s total revolving credit. The highlights of the findings were:

• About one third of the group, or 8.5. million cardholders, experienced a slight drop in credit score, typically around 20 points.
• About 3.5 million saw no change in their FICO score
• About 12 million cardholders actually increased their credit score after the credit limit cut.

Why the big variance? In its report, FICO points to several factors. First of all, other factors in the consumer’s credit history might impact the effects on the credit score. Secondly, the amount of credit limit cut could also affect the score. People who had less credit available, and thus would see a higher percentage of their total credit limit cut, would be more liable to see their credit score adversely affected.

FICO points out that how consumers reacted to the credit limit cut also had an impact. Some cardholders reacted by paying down other card balances or by applying for a new credit card to recuperate the lost credit line. Both actions would improve the credit utilization ratio, and thus could lead to increased credit score. On the other hand, cardholders who didn’t take any compensating actions might be more liable to see their score affected.

Lastly, consumers with high credit scores tend to have a low credit utilization ratio, and as a consequence, are much less vulnerable to a decrease in the available credit. On the other hand, consumers in the mid-range of the credit score spectrum are likely to have a higher credit utilization ratio, and therefore are more likely to see their credit score suffer because of credit line reductions.

The bottom line: You can’t do much to safeguard yourself against credit limit cuts, but you can prevent them from affecting your credit score. In addition to always paying your bills on time, keep your card balances low. Credit counselors recommend using less than 30 percent of your total available credit. However, in times of uncertainty like these, keeping card balances around 10% is preferable. That way, if your card limit is cut, your credit utilization ratio, comparatively speaking, will still stay within levels that won’t drag down your credit score.

In the current tight credit environment, keeping your credit score as high as possible is of critical importance. The rules for credit scores are changing. A credit score of 720 used to be considered Excellent, and would get you approved for loans and credit cards with the best terms. Nowadays, your credit score must upwards of 750 to be considered Excellent.

Even worse, with the changing credit card landscape, the rules for what it takes to keep your credit score high are also changing. It’s no longer enough to simply pay your bills on time; you have to be much more proactive to keep your credit score as high as possible. To keep your credit score in tip-top shape, here are six important credit score moves to make now.

1. Keep Track of Your Limits. Credit card companies have been cutting back credit lines like never before. They have already cut credit limits by 1.25 trillion, and some experts estimate that card issuers will scale back credit lines by another $1.5 trillion before the current pullback in credit card lending comes to an end. Card issuers don’t have to notify cardholders of credit limit cuts, so your limits could have been slashed without your noticing, particularly on cards you rarely use.

The more cards that get their limits cuts, the more your score could potentially be affected. Why? Because credit limit cuts may affect an important part of your FICO score, the so-called debt-to-credit-limit ratio. This is a measure of how much a person uses of his or her available credit, and it makes up a full 30 percent of the FICO score. When your credit limit is cut, it will affect your debt-to-credit ratio if you carry outstanding balances on your credit cards, because you will now be using a higher percentage of your available credit. This in turn could lower your credit score, depending on how much your credit limit was cut. So, keep a list of all your credit cards with their current credit limit and keep it updated every two to three months to avoid adverse effects from credit line cuts.

2. Keep balances below 30%. Many card holders have seen their limits lowered to $2,000 to $3,000. For cards with low credit limits, it’s much easier to rake up a credit balance that is high in relation to the available credit. If your card limit is $10,000 and you regularly charge, say, $1,800 to your card each month, you’re only using up 18% of the available credit. If the card limit gets lowered to, say, $2,000, however, those $1,800 in monthly charges now turns into a debt-to-credit-limit ratio of 90%. It will make it look like you’ve maxed out your credit card and will count against your credit score, even though you haven’t changed a thing.

3. Use all your credit cards. These days, when it comes to credit cards, it’s use it or lose it. Credit card companies are cutting back their risk exposure not just by slashing credit limits, but by outright closing down credit card accounts. Credit card accounts that aren’t being used at best are unprofitable for credit card companies, at worst they represent an unknown credit risk. For this reason, credit cards rarely used are the first to get targeted for limit cuts or outright account closure. To avoid this, use all your credit cards regularly and responsibly–ideally pay off the balance in full each month.

4. Be Wary of Balance Transfer Deals. Balance transfer offers at 0% APR used to be the closest you’d come to a free lunch. However, nowadays, they are not only generally more expensive to take out; they are much more risky. Firstly, it is harder to roll the balance over into another low rate card once the introductory period expires, so you could find yourself paying higher interest rates than you did on the card you made the balance transfer from. Secondly, you have to be careful not to carry a balance on any one card high enough to affect the debit-to-credit-limit ratio and hurt your credit score.

5. Don’t close old credit cards. When card issuers cut your credit limit or raise your interest rate, it’s a natural reaction to simply want to close your credit card account. However, fifteen percent of the FICO score is determined by the length your credit history. When you close old credit card accounts, it will shorten the length of your credit history, particularly if it’s a card you’ve had for many years, and this could cause your score to inch downwards.

6. Don’t apply for new credit cards willy nilly. Applying for a new credit card affects FICO scores in several ways: For each credit card application submitted, points are deducted from your FICO score. Further, by adding a new credit card, the average age of your credit history will go down, again possible detracting from your total score. Finally, most credit cards these days are issued with very low credit lines, and using these to rake up new debt could hurt your debit-to-credit-limit ratio.

Credit scores typically range between 300 to 850, and a surprising number of things in your life depend on where your score falls in that range. Certainly, your credit score influences your ability to get a credit card or get approved for a new loan. However, your credit score also influences how much you’ll pay for car insurance, whether you’ll get approved for a cell phone, and it’s even considered when you apply for a job or for a rental.

So with credit scores calling the shots in so many important areas of your life, have you ever wondered why credit scores differ so much between the three credit rating agencies? In fact, even though the three credit bureaus have access to the exact same information, it’s possible for someone to have a credit score of 705 on their Equifax report, 730 on their TransUnion report, and a credit score of 815 with Experian. What gives?

There are three main reasons that credit scores vary between the credit rating agencies:

Different ways of calculating the score. There are many different statistical methods for calculating credit scores. The most widely used method is the FICO score, which was developed by the Fair Isaac Corporation. However, the credit rating agencies all use their own methods of calculating credit score, sometimes referred to as FAKO (or FAK-O) scores. The three methods of calculating at times come close to each other, but they can also vary as much as 100 points.

Different information on file. The information available to the credit rating agencies may vary slightly. One of your creditors may report to only two of the bureaus, while another creditor reports to only one bureau, and still others report to all three. This difference arises mainly from differences in the computer systems different lenders use to electronically report credit history data to the credit rating agencies. You may also have a mistake on one report, which is not on another, or a bad mark could be removed on one credit report, but not on another. These are all reasons why the information on file about your credit history may vary between agencies, creating variance among credit scores.

Credit Score Estimates. In many cases, the credit score available to consumers are estimates, not the real numbers. This can also be a source of variance.

Should you be worried that a lender might pull the report with the lowest score and get a less favorable picture of you? Not too much. The difference could arise because the number you receive is an estimate. More importantly, for big loan decisions like a mortgage, lenders generally pull all three reports and use the average of the three scores.

Still, there are steps you can take to bring your scores more in line. Firstly, get a copy of all your three credit reports. Then compare the three carefully, first to see if all the information is accurate, and secondly to see if each report carries your complete information. If you find inaccuracies or omissions, file a dispute with the credit rating bureau asking them to correct it. You can do this online or by sending a letter. Be sure to report mistakes that appear on all three credit reports to all three credit agencies, otherwise the changes will just show up with the one agency with which you file the dispute.

Correcting mistakes or inaccuracies on your credit report is worth your while, because it could well improve your credit score as well. Once you have filed the dispute, follow up after three months to see if the mistake has been corrected.

You’re entitled to a free credit report once a year from all three credit rating agencies, and these can be downloaded directly at Annualcreditreport.com. You will have to pay a fee if you want to get your credit score too. You can also get a free credit report if you have been denied credit within the last 60 days, by calling the credit rating rating agency whose report the decision was based on.

Here are five steps to finding and disputing errors on your credit report.

Step 1. Get a copy of your credit reports.

There are three credit reporting agencies—TransUnion, Experian, and Equifax. While it might seem that getting a credit report from just one of the credit bureaus would be enough, financial advisers recommend checking out all three, because they often differ. By law, the credit reporting agencies are required to let consumers see their report for free once a year. To download a copy for free, go to www.annualcreditreport.com or call 877-322-8228.

Step 2. Review your credit reports line by line.

When you receive the credit reports, go through each report line by line to look for inaccuracies. Here are some of the things to look for:

• Is the credit limit on all credit card accounts correct? In some cases, credit card companies won’t keep the credit limit on a card updated. This can affect your credit score by making it look like you use more of your total available credit than is really the case.
• Are there any accounts or items that you don’t recognize? Accounts or other financial activity you don’t recognize could be a sign of identity theft.

Step 3. Highlight the negatives

Look for negative credit items that pull down credit scores. These include late payments, missed payments, collections, public record items, foreclosure proceedings, and charge-offs. For each item that needs attention, highlight it on each credit report and return to it later.

Negative marks stay on the credit report for many years after they get resolved. Unpaid collections will be marked on the credit report as “collection,” and if it’s paid, it will be listed as “paid collection.” Missed payments, paid tax liens, and public record items stay on the credit report for seven years. Bankruptcies remain on the account for 10 years, and unpaid tax liens for 15 years.

Step 4. Dispute inaccurate information.

In the past, inaccuracies could only be disputed by mail. Nowadays, each of the three credit bureaus, Experian.com, Transunion.com, and Equifax.com, allow consumers to submit disputes directly at their website.

When submitting the dispute, state why the information is incorrect and enter any supporting facts. If you submit the dispute online, once you click the Submit button, a notice is automatically sent to the source of the negative item.

When you file a dispute, the party that submitted the negative item must verify the account data and respond within 30 days. If the party is unable to verify the information or doesn’t respond within the required 30 days, the negative item will be removed from the credit report. You will receive a credit report reflecting the results of the dispute by email for online dispute and by mail for disputes that were mailed in.

5. Review the results of the dispute.

If the source of the negative item verifies the information, the negative mark will remain on the credit report. But even if the item stays on the report, you still have options. If there are unique circumstances involved, add a 100-word personal statement to the report, explaining your side of what happened. While the statement won’t affect the credit score, potential lenders, employers, or landlords may take it into account when looking over your credit report in the future.

As negative items disappear from your credit report, your score will improve, steadily and surely, as along as you abide by the basic rules for keeping a good credit score. It will take months to see results, but for the little time invested, the effort is well worth it.

It’s well known that carrying too much credit card debt or missing credit card payments will hurt one’s credit score. Few people, however, are aware that credit cards also can be a great way to begin to build a credit history and that they can even help improve one’s credit score. Here are four ways in which credit cards can boost your FICO score.

1. Credit cards establish a credit history.
One component of FICO scores is the length of your credit history. Unfortunately, for people just starting to build their credit, this can be a Catch-22. It’s hard to get approved for a loan without a credit history. However, without a loan, they can’t begin to establish a credit history.
Credit cards break this deadlock, because they are easier to get approved for than other types of loans. Applying for a credit card is an easy way to begin to establish a credit history. Credit card accounts that have been open for five to ten years or longer are a great way to bolster the part of your FICO score derived from the length of your credit history.

2. Credit cards help you show that you can be trusted to pay off your debt.
The whole system of FICO scores is based on the assumption that people are likely to act in the future the way they’ve acted in the past. Someone who has made regular payments on their debt in the past and has never missed a payment is likely to continue to act like this in the future. In short, if the payment history on your credit cards shows that you can be trusted to meet your debt obligations, this counts as a positive on your credit score.

3. Credit cards allow you to demonstrate that you can handle credit responsibly.
As far as FICO scores are concerned, how much you use of the credit available on your credit card shows how responsibly you manage credit. If you go to town and rack up credit card charges you can’t pay off, it’s an indication that you, for whichever reason, rely more heavily on credit than is prudent. On the other hand, if you can keep credit card balances at around 10% of your total credit limit, it shows that you know how to budget and manage your finances. This will give your FICO score a big boost upwards.

4. Credit cards show that you can manage different types of debt.
A portion of FICO scores relies on the credit mix a person has. Having different types of loans, like credit cards, a mortgage, and an auto loan, will give your FICO score another push upward. It’s taken as evidence that you are financially savvy and able to manage different types of debt responsibly.

Of course, credit cards are a two-edged sword. If you keep credit card debt low and pay your credit card bills on time, having credit cards are a great way to increase your FICO score. Unfortunately, if you do the opposite, credit cards can also be a great way to ruin your credit score faster than you can say FICO.

Credit scores have always been important, but today, more than ever, your credit scores rule your financial destiny. With tightened lending practices and stricter underwriting rules, paying attention to your credit score is no longer simply a choice, it’s a necessity. If your credit score is already high, follow basic rules of credit to keep it that way. If it has fallen below average, now is the time to take steps to increase your credit score.

Your credit score affects not just your ability to get approved for a mortgage, an auto loan or a new credit card. It also determines the loan terms and hence how high your monthly payments will be. In addition, credit scores often play an important role when you apply for a new job or seek to rent an apartment or house, as prospective employers or landlords often rely on a person’s credit report as part of their background check.

Fortunately, new online tools make it easier than ever to keep an eye on your credit report and even take steps to improve your credit score. Here is CreditCardGuide.com’s selection of the top 3 online credit management tools.

Tool #1: Get a Free Copy of Your Credit Report

By law, everyone in the U.S. is entitled to a free copy of their credit report once a year. AnnualCreditReport.com is the official site to go to download a free copy of your credit report from each of the three credit reporting agencies, Equifax, Experian, and TransUnion. At the site, you can download a copy of your credit report right away, or request a copy to be sent by phone or mail.

Be aware that all three credit bureaus do some heavy-duty upselling at the site, trying to sell you numerous additional services. Most people don’t need these extra services. If your credit report needs further monitoring or repair, there are usually better options. If you are curious about a service, sign up for the free trial period, but be sure to cancel before it expires.

Tool #2: Estimate Your Credit Score

Reviewing your credit report is a good place to start, but you also need to know what your credit score is. While credit reports can be downloaded for free once a year at AnnualCreditReport.com, the credit bureaus charge a fee of $9.95 or more for your credit score.

Instead, use a free online credit score estimator to estimate your credit score. Simply answer a number of questions, and the FICO Score Estimator will calculate a range within which your FICO score is likely to fall. In most cases, this will be enough to determine whether your credit score is okay or in need of attention.

Tool #3: Fix Credit Report Errors

One of the fastest and easiest ways to improve one’s credit score is to fix credit report errors. An estimated 75% of credit reports contain some type of error, and many of these negatively impact credit scores. Something as simple as a credit card company failing to update the credit limit on a credit card can pull the credit score down by making it look like the card holder is using more of his or her available credit than is actually the case.

A new website, SmartCredit.com, offers an easy way to both check your credit report for mistakes and correct mistakes quickly and easily online. SmartCredit.com offers several advantages over simple credit-monitoring websites. It highlights the negatives on the credit report and makes it easy to see how much a negative is pulling down the credit score.

Even better, SmartCredit.com makes fixing credit report errors an easy mouse click away. The site’s technology communicates electronically with a vast number of banks, credit card companies, and collectors and automatically routes corrections or complaints to the right place. This can save you a lot of time and confusion trying to find the right department and location of creditors and banks. The site also provides tools to request goodwill corrections of negatives (such as year-old entries that continue to mar a person’s credit) or debt settlements. The site automatically estimates how much your credit score is likely to improve based on those actions.

SmartCredit.com is a paid service, but the ease of resolving errors directly online instead of by snail mail makes a short-term subscription to the site well worth the cost—if your credit report contains errors. If it does not, you can always cancel within the five-day free trial.

What a difference a few hundred years make. Like our forebears of yesteryear, we hold certain truths to be self-evident: that we’re all endowed with certain unalienable rights and that all men (and women) are created equal—as long as our credit score meets a certain minimum benchmark.

Credit scores are just little three-digit numbers, but for better and worse, they govern our financial life, determining whether we’ll get approved for everything from a new mortgage, auto loan, or credit card; and even whether we’ll be able to land a new apartment or get that new job.

There was a time, in a galaxy not too far away, when credit scores did not exist and banks and other lenders had to rely on human judgment alone to decide who was eligible for credit. The concept of credit scoring was first introduced in 1958, when the Fair Isaac Corporation sent a letter to the 50 biggest American credit grantors inviting them to learn about their new concept of credit scoring. The idea was to create statistical models using payment information from thousands of borrowers. Fair Isaac suggested that this would make it possible to predict how a consumer would handle credit based on the behavior of people with a similar credit profile.

Only one company replied to the letter.

From there, it was a slow uphill climb during the 60s and 70s as Fair Isaac introduced credit scoring systems to individual banks and mail order companies like Montgomery Ward. It wasn’t until 1989 that the first general-purpose FICO score had its debut and it would be another two years, before all three major US credit reporting agencies, Equifax, Trans Union, and Experian, introduced some type of credit scoring system. Once credit scores were more generally available, however, they quickly grew in popularity. By 1995, mortgage giants Fannie Mae and Freddie Mac were recommending use of FICO scores for lenders’ evaluation of mortgage applications. The rest, as they say, is history.

Like them or hate them, credit scores in some ways have been a great equalizer. Prior to credit scores, lending decisions were made in large part at the discretion of bank loan officers taking the application and processing the loan. This was imperfect at best. Firstly, the system only worked for approving local loans where people could be personally interviewed, which proved to be very impractical, particularly for credit card applications.

Worse, leaving lending decisions in the hands of individual loan officers often led to age or race discrimination, particularly in mortgage lending and in the practices of debt collectors. When the FICO score was released, it gave lenders an easy, impartial and consistent way to evaluate credit card and other loan applications without guesswork or potential prejudice. FICO scores offered a means to level the playing field and give everyone an equal chance of credit—based not on race or age, but only on how responsibly they manage credit.

Today, there are several types of credit scores, but FICO scores remain the most widely used. While not perfect, credit scores have proven quite effective at predicting a person’s future credit behavior and evaluating his or her creditworthiness.

Credit scores didn’t just level the playing field and make credit available to people based on merit rather than their age or the color of their skin. The large-scale introduction of credit scores has made credit approval extremely fast and efficient, sometimes even instant, as in the case of online credit card applications. In this way, the introduction of credit scores helped pave the way for the credit card revolution and the vast expansion of consumer credit lines we’ve witnessed over the past two decades.

By Eva Norlyk Herriott

Having bad credit can be costly. Not only does bad credit make it harder to get approved for mortgages, auto loans, or a new credit card; if you do get approved, the loan will come with more restrictive terms and higher interest rates, potentially adding thousands of dollars in costs over the life of the loan.

Fortunately, it’s always possible to improve your credit score, even though it will take awhile. We all wish that we could simply put our credit score on steroids, but unfortunately the only thing that really raises one’s credit score over the long term is using credit responsibly. Then again, that may not be such a bad thing after all. Basically, what’s good for your credit score tends to also be good for your financial health. Here are ten do’s and dont’s to help give your credit score a tune-up.

5 Credit Score Do’s

1. Do pay all bills on time. A full 35% of the credit score is based on whether bills are paid on time, so if you’re not already serious about paying on time, now’s the time to get religion. If you’re behind on credit card payments, do whatever you can to get current and stay current. The longer your bills are paid on time, the more your credit score will increase.

2. Do pay the balance down. According to myFICO.com, one of the most effective ways to improve your score is to pay down your credit card debt. 30% of your credit score is based on your credit utilization ratio, i.e., how much you use of the available credit, so aim to get credit card balances below thirty percent of the credit limit on all your credit cards, and preferably below ten percent. To improve your credit utilization ratio faster, first pay down the cards that are closest to the credit limit.

3. Do curb credit card spending. One of the best ways to lower your credit card balance is to cut back on credit card spending and stop putting more charges on your cards than you can pay off at the end of the month. Make a budget for how much you can spend on the things you normally charge each month: food, gas, clothing, subscriptions, entertainment, and so on. Treat that amount like you would a balance in a checking account, and each time you make a charge to your credit card, subtract it so you always know how much money you have left to spend.

4. Do mix it up. A great way to strengthen your credit is to show that you can manage a variety of credit responsibly. Having different types of credit like auto loans and a mortgage in addition to your credit cards will raise your credit score over time, especially if you make the payments on time.

5. Do check your credit report. According to Bankrate.com, as much as 70 percent of credit reports contain errors. Disputing inaccurate information can be one of the fastest ways to improve your credit score. Everyone is entitled to a free copy of his or her credit report once a year. Pull a copy of your credit report and read it carefully to make sure that all the information is accurate and up-to-date. Check that your credit card limits are correct; if they are listed as less than they actually are, it could cause your credit score to be lower. Call the card issuer and ask them to update the information.

5 Credit Score Dont’s

1. Don’t just move debt around. Instead, explore ways to pay off your debt.

2. Don’t close unused credit cards. If you owe the same amount, but have fewer open accounts, it can lower your credit score.

3. Don’t take out new credit cards just to increase your total credit. Each time you apply for a credit card, it lowers your credit score.

4. Don’t open new credit card accounts too rapidly. New accounts lower the average age of your credit accounts; this can lower your score, particularly if you are a new credit card user.

5. Don’t just ignore credit card problems. If you’re having problems paying your monthly credit card bills, take steps to manage your finances and if necessary, seek help from a credit counselor.

The world of credit is changing fast, and so are the benchmarks for what is considered good credit. In today’s tightening credit environment, people who once had good credit may find that their score no longer measures up, and that applying for a new credit card or loan suddenly is not as easy as it used to be.

Credit scores give credit card companies and prospective lenders a quick snapshot of a person’s financial situation and his or her ability to manage credit responsibly. Credit scores are just little three-digit numbers, but they pack a surprising punch. Your credit score not only affects whether you’ll get approved for a new credit card or mortgage loan, it may also affect your ability to land a new job or rent a place to live.

In today’s tightening credit environment, credit scores have become more important than ever before. At the same time, unfortunately, the benchmarks for what is considered excellent and good credit are changing, and people with a score that used to be considered good may discover that lenders now turn their nose up at their score.

According to mortgage brokers and industry professionals, while people with a FICO score of 700 to 720 in the past qualified for the best mortgage rates, today a FICO score of 740 is considered minimum to get the best terms. For the best deals on rewards credit cards, auto loans and home equity lines of credit, lenders nowadays want to see a FICO score of 750-760. On the lower end, a credit score of around 620 used to be considered subprime, today even a score below 660-680 is considered below average.

The tightening credit standards affect people with a high FICO score of about 750 or greater very little. If anything, people with excellent credit might find that they’re more popular with lenders than ever. People with lower credit scores, in contrast, are likely to really feel the bite of the tightening credit environment. They will find it harder to get approved for credit cards or loans, and when they do get approved, they will be charged higher interest rates and be given far less favorable terms.

A low credit score can cost you dearly in the long run. While a 1-2% uptick in interest rate may not seem like much on paper, it translates into both higher monthly payments and far higher interest charges over the life of the loan. For a 30-year mortgage, for example, for each $100,000 borrowed, those with stellar credit will pay $90,253 in interest over the life of the loan, while someone in the subprime credit category will pay $131,727, according to myFico.com (based on interest rates of 4.86% versus 6.67%). The monthly payments would be $528 versus $644, a $116 difference that in turn affects how much house you can afford.

In this environment, it’s important to be more cautious about maintaining a good credit score than ever. Aim to have a credit score of 750 or more. Follow the usual guidelines for keeping your credit score high:

• Pay all bills on time.
• Keep balances on credit cards and other lines of credit at 30 percent of available limits (preferably at 10%)
• Keep applications for credit, including credit cards, to a minimum, except when you’re shopping around for the best terms for a mortgage.
• Have a mixture of different loans and credit cards to demonstrate that you can manage debt effectively.