Credit Management Paramount in Tough Times

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With the economy in crisis, many men and women have understandably begun to curtail their spending. Though it's important to save money during these trying times, saving should not be the only lesson men and women learn from a recession.

Though the volatile state of the economy cannot be traced to a single source, many people have found themselves facing considerable debt. That debt, when coupled with the specter of layoffs, has resulted in many a sleepless night for men and women across the country. With the credit crunch in full swing, men and women struggling to manage debt would be wise to reacquaint themselves with the concept of credit, both what it is and how to manage it and use it to their advantage as opposed to their detriment.

What Exactly Does

Credit Score Indicate?

Using a standardized formula, a credit score is a statistical analysis that lenders use to determine a person's credit risk. A number of factors can be detrimental to a credit score, including late payments and unfavorable credit card use.

Perhaps no group has taken a harder hit to their public image in the current economic climate than banks, who have been criticized for what many have viewed as questionable, if not irresponsible, lending practices. As a result, banks have widely adopted tougher restrictions with respect to lending, and in so doing have put those with higher credit scores in better positions should they seek to borrow money. Credit scores can determine eligibility for a loan, but also the interest rate associated with that loan. The better a credit score, the lower the interest rate, potentially saving men and women substantial amounts of money over the length of a loan.

How Can a Credit Score Be

Restored to Respectability?

Restoring a credit score isn't easy, and it will not happen overnight. However, it's not impossible for prospective borrowers to re-establish themselves as worthwhile credit risks.

* Open new accounts: While it might be difficult to secure new lines of credit in the current economy, responsibly opening new accounts and being sure to pay bills on time is a great way to restore a questionable credit rating.

* Request your own credit report: Americans are legally entitled to one free credit report every 12 months. This is just a report, and the credit score will actually not be included (though it can be for a fee), but it will allow individuals to see any potential discrepancies as well as see their patterns with respect to how they've used credit in the past, which can help them alter their behavior in the future.

Those who regularly seek new lines of credit can lower their credit score the more a report is sought (lenders always request the report when a prospective buyer is seeking a new line of credit). However, when an individual seeks his own report directly from the credit reporting agency, this has no effect on that individual's score.

* Keep balances low: Particularly in the current economy, it can be tempting to save cash now by paying bills with credit cards. However, this can prove disastrous, and is not a responsible way to manage credit. Maintaining low balances on credit cards and similar credit accounts (such as furniture stores, appliance stores, etc.) can help restore a credit rating. One credit card balance should not be paid off with another credit card. Moving debt around won't improve a credit score. Eliminating debt will.