Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

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Your first and likely best option is to write your creditor and request a pay-for-deletion arrangement. In the letter, offer to pay a percentage of what you owe provided that the creditor agrees to remove the charge-off from your credit report. If the debt is fairly recent, you may need to offer the full amount as payment in order to get the creditor to agree. Not all creditors will agree to this type of arrangement, but if they do, be certain you have the pay-for-deletion agreement in writing before you send in your payment. You will have to use certified funds in this type of an arrangement, so be prepared take the extra step of purchasing a money order or cashier’s check. This option works best, because the derogatory credit history will be gone from your report as if it never existed.

Your second option is to arrange for the debt to be listed as ‘Paid in Full’ on the credit report, in exchange for payment. Just as with a pay-for-deletion agreement, you must be certain to get this in writing, especially if you work out a payment arrangement that is less than what you owe. The ‘Paid in Full’ listing will improve your credit score, but not as much as having the derogatory information removed entirely. What you do not want is a listing of ‘Settled’ on the account, as it indicates to other creditors that you do not fully meet your credit obligations.

Your last option, if you cannot work with your creditors in any other way, is to pay off the debt in full, with appropriate account numbers, reference numbers and any other necessary information included with the payment. Make copies of everything, and once the payment clears, you can dispute the listing on the credit report to have it updated as ‘Paid in Full’. Keep in mind that you must provide proof that the debt was entirely satisfied in order for this method to work, so you won’t be able to make a payment that is less than the full amount owed if you want this to be successful.

One final note: charge-offs remain on your credit report for up to 7 years. If the date for the charge-off to be removed from your credit report is close, you may wish to wait for it to be removed from your credit report entirely. This is true whether or not you ultimately decide to repay the debt, because repaying older debts can cause your credit scores to drop temporarily.

Getting your credit repaired can take some time if you have several charge-offs. Be patient, wait for the written agreement, and make the payments in certified funds in order to obtain the best results.

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Pay for deletion is not the same as a settlement agreement. When you pay off a settlement account, the account itself remains on your credit report, and will be listed as either ‘Paid in Full’ or ‘Settled’ depending upon whether or not you paid the full amount to the creditor or a partial payment. Having these settled accounts on your credit report can actually hurt you in some instances, as potential creditors may consider you a risk when it comes to repaying your debts in full. With pay for deletion, the record is removed from your credit report entirely – a potential creditor will not see the account, and it will not be a factor in your credit score.

Pay for deletion is most helpful for charge-off accounts that have been purchased by collection agencies, and other very old debts that have not been paid. By removing these debts from your credit history, you may be able to raise your credit score by several points. If you are using a credit repair agency, and they recommend a pay for deletion strategy, be certain that you have the agreement in writing before you pay – without the written agreement, you may find that the derogatory account remains on your credit report, even after you’ve paid.

It’s important to realize that pay for deletion is only a useful strategy when you have the money available to pay. Creditors will expect money in certified funds, such as a cashier’s check or money order, so having the funds on hand will help to expedite the process, should your creditor agree to the pay for deletion arrangement. Some creditors do not enter into these types of agreements, so it’s not a one-size fits all solution. However, even if the creditor does not agree, you or the credit repair agency may be able to negotiate other favorable terms in order to avoid having a ’settled’ account on your credit report.

While pay for deletion is not always a viable option for everyone, it can help some individuals who have old debts that they can afford to pay off right away. Whether you are repairing your own credit, or relying on the services of a credit repair agency, get the pay for deletion agreement in writing, be ready to pay, and follow up to be sure that the account has been successfully deleted from your credit report after you’ve paid. As long as you pick accounts that are best suited to this type of agreement, you may be able to benefit from a tangible boost to your credit score.

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Your available credit to debt ratio is, simply put, the amount of debt you currently carry, divided by the amount of your available credit. For example, if you have a credit card with a $1000 limit and you carry a $500 balance, your available credit to debt ratio is 50%. The lower this ratio, the better your credit score will be. Ideally, you should aim for a total credit to debt ratio of 30% or less. A high ratio will negatively impact your credit score even if you make all of your payments on time. This is because people who use most or all of their available credit are seen as having a higher risk of default.

It may seem as though the answer to improving your credit to debt ratio is to open more credit card accounts. In reality, opening multiple accounts in a short period of time will negatively impact your score. Your best option, if you have been making payments on time regularly to your credit card company, is to call and ask for a modest increase to your credit limit. This helps in two ways – first of all, it is an increased limit on a card that has a successful payment history. Secondly, it increases your overall available credit, which will lower your available credit to debt ratio, improving your credit score.

By the same token, if you have credit cards that you have paid off recently, don’t cancel them. The available credit on those cards still counts as part of your available credit to debt ratio. If you’re worried that you might be tempted to spend, take the cards out of your wallet and put them in a safe place that isn’t easily accessible for impulse purchases. Every six months or so, you may want to use the cards for a small purchase such as dinner or a movie, in order to keep the accounts from being canceled due to inactivity. Be sure to pay the full balance on the card when it comes due, in order to keep your debt ratio down.

Another way to improve the available credit to debt ratio is to pay more than your minimum balance each month. Besides being an excellent financial advice, paying more will free up more of your credit, and lower your available credit to debt ratio. One word of caution, however: if you have several credit cards with very high limits that you are not using, and that carry no balance, you may want to ask to have the limits lowered temporarily if you are in the market for a car or other large purchase. Some companies see an excessive amount of unused credit as potential debt, and may be reluctant to loan funds in that instance. In most cases, however, this credit will not work against you, but for you as you continue to build a solid credit history that will keep your credit score climbing.

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Reason Number One: You are Moving or Plan to Move in the Near Future

If you’re planning on moving into a new apartment, problem credit can often cause unforeseen difficulties and increased expenses. Most apartment managers now run credit reports when you fill out an application for a new apartment. This can mean that you’ll be turned down for rent in more reputable apartment complexes, leaving your options for suitable living arrangements limited at best. If you are accepted into the apartment complex, be prepared to pay a higher deposit than most renters – and you may or may not get your deposit returned at the end of the lease period, depending on the terms.

Poor credit scores can also cause difficulties with your utilities. Electric companies, gas companies and phone companies almost always check your credit history, and a poor credit score can mean deposits upwards of $200 or more. This can quickly add up to an unaffordable expense if you’re trying to move for financial or budgetary reasons. If you don’t have the cash on hand to pay the exorbitant amount charged for deposits and connection fees, you may find you can’t afford to move at all, since utilities are a large part of what makes any residence livable. And if you do manage to pay the deposits, don’t expect a refund; some companies will apply the deposit to your balance after several months of payment. Others will hold the deposit as security against your final bill. But rarely will a utility company issue a refund check for a deposit, unless you are turning off the service and have a positive balance.

Reason Number Two: You Plan to Look for a New Job

Unemployment is at an all-time high, and new jobs with decent benefits are becoming more scarce throughout the country. If you are one of the many recently unemployed due to company layoffs and closings, a poor credit score may put you at the bottom of the pile when it comes to job applicants.

More and more, employers are looking at the credit of potential employees when making hiring decisions. Poor credit may put you out of the running for a new job, even if you are highly qualified in other ways. Of particular concern, if you work in management or finance, a poor credit score may be seen as a direct reflection of how well you would manage company funds.

If your current position requires a security clearance, you may find yourself suddenly out of job if your credit scores fall too low and you are classed as a security risk.

Job seekers can give themselves an extra advantage with a clean credit history and strong credit score. Whether accurate or not, your credit history is seen as a gauge of how trustworthy, responsible, and reliable you will be in your new position. If you take the time to clean up your credit score before you start your job search, you may find more opportunities for employment.

Reason Number Three: You Plan to Buy a House/Refinance Your Mortgage

While the banks are not doling out home loans at the levels seen earlier in the year, home buying could prove an attractive option for those who could not afford home prices seen just a few months ago. With the housing markets weakening, many first-time buyers could be in for an attractive first mortgage if they have good credit scores. Interest rates are low, and with foreclosures on the rise, a couple with an average income for their area may be able to afford a larger or nicer home than they would have when the housing market was booming.

If you’re currently a homeowner and thinking of refinancing, having a good credit score can see your mortgage payments drop dramatically, saving you thousands of dollars over the life of the loan. While not everyone can qualify for refinancing, having a good credit score means that you’ll have more options than most people who are looking to downsize their mortgage payments in the long-term.

Those who have problem credit are not likely to find a home loan available for any price in the current market. With so many lending companies burned with the so-called ’sub-prime’ lending spree, the market for loans available to buyers with less than perfect credit has diminished dramatically. So even if you have the income for a new home, a poor credit history may prove to be an insurmountable barrier to the American dream.

There are many reasons to consider credit repair as a solution to your current credit score problems, but if you fall into one of the above categories, you may want to take a closer look at procuring credit repair sooner, rather than later. With the amount of money you save in reduced deposits, increased job security, and lower interest rates, the amount you spend on credit repair services will be a drop in the bucket, comparatively.

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An authorized user is someone who is added to another person’s credit card account and authorized by the principal cardholder to use that account. The authorized user receives a credit card with his name on it and is able to use the credit card as if it were his own.

Payment history for that credit card is now reported to both the principal card holder’s credit report as well as the authorized user’s credit report, regardless of whether the history is good or bad. That means the authorized user’s credit can benefit from the relationship, but it can also suffer if debt accumulates and payments are late or not made at all.

How to Become an Authorized User

1. Confirm your friend’s or family member’s credit card issuer will allow an Authorized User (not a co-signer unless you need a card…however, there is risk to your friend or relative)

2. Confirm the card issuer reports your friend’s/relative’s account activity for an Authorized User to the big 3 credit reporting agencies.

3. Confirm the card holder has a VISA or Mastercard — most powerful. Avoid Capital One and American Express…they have a *screwed-up* reporting method which actually penalizes a card holder’s FICO.

4. Confirm the card holder’s account does not carry a balance greater than 30%.

5. Confirm the account holder is not late (ever…no 30, 60 or even 90 day late payments).

6. Confirm the account holder has had the card for at least five (5) years – the longer the better. It’s more seasoned.

7. Confirm the account holder regularly uses the card…obviously, there’s a benefit to *using* one’s credit.

When you’re an Authorized User, you do not need to receive a card; therefore, in such cases, there’s no risk…to the other person that is.

NOTE: We’ve made it clear that with no card, there is no risk to your friend or relative. You are now at risk, however! How? Your friend’s-relative’s account history goes to YOUR credit file. That’s AWESOME, provide your friend or relative really HAS the account history he or she has told you. If not, you get your friend’s or relative’s account history…good or bad.

Absolutely know your friend’s or relative’s responsibility.

However, if your friend or family member is not straight with you about his/her payment history (lates), seasoning (age of account), cash-to-credit limit (how much is charged to the card versus credit limit ratio), credit limit (what amount), there may not be a benefit to you.

On the other hand, you also may receive a real card with your friend or relative co-signing for you on their account, if that’s your intent. There’s more risk, but it’s doable.

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If you’re just starting out, you have a once-in-a-lifetime opportunity to build a credit history the right way. Here’s what to do, and what to avoid.

Check Your Credit Report

You’ll first want to see what, if anything, lenders are saying about you. That kind of information is contained in your credit report at each of the three major bureaus: Equifax, Experian and Trans Union.

Credit reports are used to create your credit score and help lenders decide whether to grant you credit based on your credit payment history. Most lenders will just go by your credit scores, but they also may look at the report itself, as may the landlords, employers and insurance companies who use credit to evaluate applicants.

Can you have a credit report if you’ve never had credit? Maybe.

Somebody else’s information could be mixed in with your report, either through a credit bureau mistake or because of identity theft; i.e. someone using your personal information to open bogus accounts. Statistics show that 70 percent of credit reports contain serious errors that might cause consumers to be denied credit cards, car loans and even mortgages.

If that’s happened to you, you’ll need to clean up your credit report before trying to apply for new accounts. The good news is that the Fair Credit Reporting Act requires credit reporting agencies to fix these mistakes. But it takes your diligence to make sure it happens.

Establish Checking and Savings Accounts

Here’s a basic step that’s sometimes overlooked by people seeking credit. Lenders see these accounts as signs of stability.

Opening checking and savings account is also one of the few things you can do as a minor to start building a financial history. While you can’t get a credit card in your own name until you’re 18 and can be legally held to a contract, many banks have no problem letting you open an account.

Not all banks will. If your bank doesn’t, you need to either look around for another bank or consider opening a joint account with an adult. Credit unions are usually the most lenient and have the best rates.

Understand the Basics of Credit Scoring

You need to know that the two most important factors in your score are:

• Whether you pay your bills on time.
• How much of your available credit you actually use.

It’s essential that you pay all your bills on time, all the time. Set up automatic payments or reminder systems so that you’re never, ever late. All it takes is a single missed payment to trash your credit score — and it can take seven years for the effects to completely disappear.

You also don’t want to max out any of your credit cards, or even get close. Keeping your credit use to less than 30% of your credit limits will help you get the best possible credit score and should help keep you from getting over your head in debt, as well.

You don’t need to carry a balance on a credit card to have a good credit score. Paying your bill off in full is the best way to keep your finances in shape and build your credit at the same time.

Authorized Users

The fastest way to establish a credit history can be to “borrow” another’s record, either by being added to a credit card as an “authorized” or joint user or by getting someone to co-sign a loan for you.

Having a co-signer can allow you to qualify for loans you might not otherwise get. The loan will show up on your credit report and, if you pay it off responsibly, will help boost your credit score. If you default, however, you won’t be the only one who suffers. The co-signer has basically promised to make good on this account, so any delinquencies will show up on her credit report as well.

Being added as an “authorized user” has its risks, for you as well as the person giving you access to the card. If your father makes you an authorized user of his credit card, for example, his history with that account can be imported to your credit bureau file, giving you an instant credit record. If he has handled the account well, that reflects well on you. But if he hasn’t, his mistakes would also become yours. Any late payments or other problems could make it harder for you to get future credit than if you’d established your history without help.

Some credit issuers won’t report authorized users to the credit bureaus, particularly if the user is not married to the original card holder. If the point is to give you a credit history, the person who’s adding you as an authorized user should call the issuer and ask how (or if) your status as a user will be reported.

Apply for a Secured Credit Card

If you can’t get a regular credit card, apply for the secured version. These require you to deposit money with a lender; your credit limit is usually equal to the deposit.

You’ll want to screen your card issuer carefully. To be frank, there are a lot of bad guys in this particular niche of the credit world. Some charge outrageous application or annual fees and punitively high interest rates.

Your credit union, if you have one, is a good place to start looking for a secured card.

Ideally, the card you pick would:

• Have no application fee and a low annual fee
• Convert to a regular, unsecured credit card after 12 to 18 months of on-time payments
• Be reported to all three credit bureaus.

If the issuer doesn’t report to the credit bureaus, the card won’t help build your credit history.

Get a Finance Company Card

Gas companies and department stores that issue charge cards typically use finance companies, rather than major banks, to handle the transactions. These cards don’t do as much for your credit score as a bank card (Visa, MasterCard, Discover, etc.), but they’re usually easier to get.

Again, don’t go overboard. One or two of these cards is enough. If you get many more, you may find that later in your life these accounts could prevent you from getting the highest possible credit score. That’s not a reason to avoid them completely, because right now they’ll do you some good.

Get an Installment Loan

To get the best credit score, you need a mix of different credit types including revolving accounts (credit cards, lines of credit) and installment accounts (auto loans, personal loans, mortgages).

Once you’ve had and used plastic responsibly for a year or so, consider applying for a small installment loan from your credit union or bank. Keeping the duration short — no more than a year or two — will help you build credit while limiting the amount of interest you pay.

Use Revolving Accounts Lightly, but Regularly

For a credit score to be generated, you have to have had credit for at least six months, with at least one of your accounts updated in the past six months. Using your cards regularly should ensure that your report is updated regularly. It also will keep the lender interested in you as a customer. If you get a credit card and never use it, the issuer could cancel the account.

Just remember the credit tips mentioned earlier:

• Don’t charge more than 30% of the card’s limit.
• Don’t charge more than you can pay off in a month. As mentioned earlier, you don’t have to pay interest on a credit card to get a good credit score, and it’s a smart financial habit to pay off your credit cards in full each month.
• Make sure you pay the bill, and all your other bills, on time.

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