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Most people know that they should regularly check their credit report, at least annually. The way you have used credit in the past and your current financial situation, is primarily what your credit score is based upon. Although it is really more complex, those are the primary factors over which you have control and need to be vigilant.

It is important to avoid credit surprises, particularly if you are looking to buy something expensive like a new car or a new home. You don’t want to find out at the dealer showroom or the real estate closing that something on your credit report needs explaining. In these difficult financial times, some credit card companies are lowering the credit limit for their customers. That may not seem so important, but how can a lowered credit limit actually affect you?

Responsible use of credit is one the primary factors that impacts your credit rating. Two of the factors that your score is heavily dependent upon are: 1) consistently making your monthly payments on time and 2) maintaining an outstanding balance of no more than 25% of your credit limit. With respect to your outstanding balance, if you are using less than 25%, the credit reporting agencies may determine that you are not using enough credit to make an accurate point score. If you are using well above that figure you will have points deducted because you have no credit to use in an unexpected emergency.

So, if you have a credit limit on a particular credit card that is $5000 and your outstanding balance is approximately $1250, that equals 25% of your credit limit and is well within the comfort range. However, if your credit card company lowers your credit limit to $2500, that same $1250 outstanding balance will now equal 50% of your available credit, not 25%, and your credit score will suffer. If you multiply that same scenario times many more credit accounts you may have, your credit score could drop significantly overnight.

Today, a good credit score is critical to get the best lending rates on credit cards and mortgage loans and what is considered a good credit score has increased in today’s tough times. Big-ticket items like cars and mortgages require even more favorable credit scores. Because the risk of default is so high these days, lenders are assessing their applicants with higher scrutiny and demanding higher scores before they will even consider lending to them. For this reason, your credit score is more important than ever.

Your best strategy is to keep close tabs on your credit report and know what information it contains by personally scrutinizing it annually. It is reported that 70% of all consumer credit reports have errors and the only way they get corrected is by the consumer filing a dispute. You want to begin working on your credit report now so that you preempt any difficulties that could occur when it comes time to apply for a loan, mortgage, new car or any other large expenditure.

Related posts:

1. Determining Your Credit Worthiness From A Free Credit Report
2. How Do Late Payments Affect My Credit Report And Score?
3. Free Annual Credit Report Online
4. Simple Credit Score Explanation
5. The Importance Of Credit Ratings