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Debt Management Guide 2008
Joys of good credit
Good credit can improve your financial health in a lot more ways than most people realize.
Joys of good credit
Perfect credit score: unrealistic, unnecessary
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But the typical FICO score doesn't penalize you if you have large amounts of credit available, Watts says, although "some creditors could raise a few eyebrows."

Credit-scoring models will compare how much credit you have available versus how much you're actually using. If your percentage ventures too high, your score will take a hit. And if you close an account, you suddenly have less available credit with the same debt load -- which increases the percentage of available credit you're using.

3. Don't carry a wallet full of cards
While it sounds counterintuitive, the people with great scores don't use credit as much -- and they treat it differently than the rest of us. So if your dream is to get that score up so that you can get every store credit card in town, you may have just solved the mystery of why you're score isn't in the correct stratosphere.

"People with sky-high credit scores apply for credit much less often than average, which is about twice a year," Watts says.

A stack of credit cards "may impress your neighbor, but it won't impress your lender," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling based in Silver Spring, Md.

4. Make every payment on time
And follow up to make sure the creditor notes that correctly on your credit history. If you've honestly paid on time, but you get penalized for being late, call and clear up the problem immediately. Not only are those late charges expensive, but one late payment can lower your credit score severely.

"It can cause your score to dip as much as 100 points," says Cunningham.

5. View credit as a safety net
How you use credit and what you buy with it can be a big indicator of your creditworthiness. People with great scores know that credit is for certain purchases -- such as a home or a car. And credit cards are for things such as auto repairs or home appliances, which are necessary immediately but are difficult to pay for all at once, or for emergencies.

But too many people "are using their credit cards to buy things that are ephemeral," Sherry says. "And that's just not a smart way to use credit."

One tip: For those life emergencies, always use the card that offers the lowest interest rate and never charge more than you can afford to pay off in three months, says Cunningham.

6. Look at your credit report
Some consumers mistakenly believe that pulling their own credit histories will hurt their scores. Wrong.

If you ask for credit and give permission for a potential creditor to see your report, your score will go down slightly because it's likely you're looking to increase your debt load. But if you simply pull your own credit history or purchase your score, it will have no effect on your credit at all.

Quite the opposite: If you use your report to improve your performance with credit or spot and correct mistakes in your report, pulling your history will actually lead to an improved score.

Consumers are entitled to at least one free report from each of the three major credit bureaus annually. Many consumer experts recommend pulling a different bureau report every four months as a way of keeping an eye out for mistakes and identity fraud.

And while it -- literally -- pays to cultivate a good credit score, obsessing over the difference between excellent and perfect is a total waste of time.

"A good chunk of people have a high score," says Cunningham. Getting there "is really just common sense," she says. Her advice: Pay your bills on time, keep those balances low and take out credit only when you need it, not every time you want it.

Says Cunningham, "There may be something obscure out there but if you do these main things, you will have good credit."

-- Updated: June 16, 2008
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