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By: Johan De Leon on Mon Apr 14, 2008

Your credit rating is an important indicator that creditors use to determine your financial trustworthiness, and a bad credit rating can have a negative impact your life: impairing your ability to buy a car, negotiate a good mortgage rate, secure loans, or get a favorable and fair interest rate on any financial products you might be interesting in purchasing. Given the current economic climate (the sub-prime mortgage crisis, a looming recession), creditors will be less likely to lend money to anyone who has less than a stellar credit rating.

Before you know what steps to take to fix a credit rating, you'll have to find out what your current score is. Contact any of the credit reporting agencies to determine your credit rating. Usually, a nominal fee will be charged, but in some cases, depending on your financial circumstances, that fee will be waived, and you may even be able to access your credit score online.

Examine your credit report carefully, following up on any reports that might have been made in error. Contact both the company and the credit reporting agency if you notice any mistakes.

Be wary of any companies that might offer to fix your credit card rating - there are rules that govern these companies' conduct, and you should contact your state or federal regulator to determine what those are before signing any agreement. A better solution would be to use a non-profit credit counseling agency that will help you negotiate consolidated debt payments. The agency will contact debtors on your behalf, work out a payment plan, and can help reduce your monthly debt payment by up to 35%.

Pay your bills on time. Utility bills are not included in your credit report, but many cellular companies will report late payments to agencies, negatively impacting your credit score. Also, make sure you pay your bills in full, or if that's not possible, pay at least the minimum amount due.

Pay your debts quickly, and pay off out-standing debts as quickly as possible, starting with the debts with higher interest rates first. Prioritize. Your debt load should be no larger than 20% of your annual income.

Keep your credit card balance below the limit. Anything higher will impact your credit score.

Build a credit history, by using credit cards, keeping under your limit, and paying back on time.

Don't make too many credit applications. Your credit rating will be negatively effected if you make too many applications for credit, and having more than two or three credit cards will scare off potential lenders. Checking on your own credit rating will, however, have no impact on your credit score.

If it's not possible to get a straight credit card, you can apply for a secured credit card, which is obtained by depositing a sum of money. Your credit limit on the credit card is a percentage of the deposit amount, and by making payments on time, you can secure a credit rating.

Life thriftily! Many people with poor credit have established habits that are hard to break. If you're in the same boat, you have to make significant changes to money and how you relate to it. It's not necessary to live a life of deprivation, but budgeting will be necessary. Pay bills and rent on time, and stick to your budget!