The importance of a good credit score is a fact of life in modern society, but this fact is often downplayed or forgotten. Part of the reason for this is that creditors are often willing to lend to people with poor credit scores. It makes good business sense for them, because the higher risk of lending to someone with a poor credit score justifies the higher interest rates and fees attached to these types of loans.

The benefits of good credit are lower interest rates and a larger pool of potential creditors. Creditors actively compete for the business of borrowers with good credit. Being able to shop around always makes for a better deal. Anyone can turn a bad score around with time and an understanding of how the credit score is compiled.

 Credit Report Basics
The score is a measure of perceived ability and willingness of the consumer to pay back loans. It is also more than a number. When a loan officer does a credit check, they also receive the full report available to the consumer. This means that all credit inquiries from third parties, open accounts, and non-payment complaints will be visible. Cleaning up the credit report is a great way to begin improving the credit score.

Clean Up Time!

The first step for any consumer is to get a copy of the report. Look for any unresolved complaints, and determine whether these bills have been paid. If so, the complainant should be contacted and instructed to change the complaint status to resolved. For open cases without resolution, you can either dispute the complaint through the credit bureau or contact the creditor to arrange a payment schedule for resolution.

The next step is to examine the number and type of open accounts. In case of more than three accounts, it makes sense to close some of them. The oldest accounts will often have the highest interest rates, and it may be tempting to close these first. A better option is to close newer accounts while maintaining older ones. Contact high-interest creditors to ask about a reduction in the interest rate.

Establish Payment History!

Late payments can happen for any number of harmless reasons, including being out of town, family emergencies, and simple forgetfulness. The only thing that creditors see is neglect in financial responsibility. Paying every bill on time each month, and paying more than the minimum due for credit cards, sends a positive signal. Electronic banking and bill-pay make it easy to stay on top of obligations.

Another positive step is to engage the credit system responsibly. A lack of history is often viewed just as negatively as a poor history. Choose one card to pay for budgeted expenses, such as gas, and pay it off in full each month for a better score.

Protect Your Identity!

Nothing can cause damage so fast as a stolen or compromised card. A vital form of protection is to keep all numbers, PINs, and contact information in a secure location, so theft can be responded to immediately. Keeping an eye on account balances will provide early warning of compromised accounts.

They say being poor in the modern world is expensive. So too is having poor credit history, but it is possible to have a decent credit score even on a low income. There are more tools available than ever to help consumers get a better credit score, but these tips remain the same regardless.

Andrew Bennett is a finance writer offering advice on obtaining specialized credit cards to build credit for the future.