Anchorage Daily News

As time goes on, our credit scores increasingly affect our ability to make major purchases. In times past, you couldn't buy a car or house with bad credit. However, with good credit you typically got the same rate as everyone else. That has all changed.

Credit scores are now used by lenders, car companies, insurance companies, even employers and landlords as a tool to evaluate whether or not they want to do business with you and at what cost -- to you, not them. So what preventative measures can you take to avoid credit problems? What can you do to fix bad credit? The Consumer Credit Counseling Services of Alaska offers preventative ideas, as well as ways to improve the statistics that increase your credit score.

Credit scores statistically evaluate five areas: payment history; amounts owed; length of credit; new credit; and types of credit. So getting and keeping a high score is a delicate balance.

First, check your credit report for errors. You can obtain a free credit report from the three major credit bureaus by going to myFico.com or AnnualCreditReport.com. To dispute items on your report contact the specific credit bureau directly. While your report is free, obtaining your actual credit score is not.

Next, pay down credit card balances. Sounds simple, but the goal should be to always owe less than 25 percent of the available credit limit. The lower the percentage, the better it reflects on your credit score. However, keep your maximum credit limits reasonable and not unduly high. Your score is affected negatively if you have access to large amounts of available debt, whether you use it or not.

Once the balance is paid off, it is not always a good move to close the account. Keeping the oldest accounts open shows history and has a positive effect. More recently opened accounts show you might not have learned to manage debt.

Just as important, make payments early -- before the grace period. Paying during the grace period is not paying on time. By paying early, you also avoid the risk of a late payment. Late payments decrease your score and could increase the interest rate you are charged. The bad news doesn't stop there. If your credit card terms have a "universal default clause," the interest rate on all of the cards, not just the late one, can increase.

Finally, when trying to purchase a house, timing is important. Don't buy a house backwards -- in other words, finding the house then looking for financing. You might need time to work on your credit score to get the best rate and pay the lowest closing costs. Additionally, because closing costs and interest rates can vary with mortgage companies, compare multiple lenders for loans within a short period of time. Multiple mortgage inquires are treated as one and impact on your score less than if you spread the inquiries over a longer period of time.

If you are already having credit troubles, talk to someone right away. With credit card problems, you want to avoid involvement with collection agencies at all costs. These types of negative notations stay on your report seven years after the balance is paid! Many credit card companies will work out a payment plan, so once your account is current it begins to reflect positively.

If you are having mortgage problems, you might need more help than just cutting up a credit card. It is ultimately your choice, but different levels of assistance are available depending on how deep a hole you've dug financially. Help can be as simple as budget counseling and money management to debt repayment programs or bankruptcy counseling.

Unfortunately, it is far easier to lower your score that it is to improve it. If you need help tipping the credit score statistics in your favor, consider contacting a nonprofit credit counselor. To pay the least in closing costs and get the best interest rate, improving and maintaining your credit score has greater importance in the home-buying process.

Clair and Barbara Ramsey are local associate brokers specializing in residential real estate. Their column appears every fourth Friday. Their e-mail address is info@ramseyteam.com.

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