Credit scores are used by most financial institutions as a benchmark to determine how good somebody's credit is. This score is the most influential factor in the decision making process of these financial institutions.

Bad credit can create a downward spiral that cripples many Americans each year. Credit scores may affect a person's ability to acquire a personal loan, car loan, mortgage, or a credit card of their preference. The terms of any loan or insurance policy may be unfavorable due to poor credit scores.

Having a bad credit rating means financial institutions may not grant someone a substantial spending limit on their credit card. Also, a lower credit rating may result in higher interest rates on purchases made with a credit card. Financial institutions charge this higher rate to compensate for the higher risk that a cardholder or borrower may make late payments, fail to pay the monthly balance, or default entirely. Since credit cards are so vital for business, personal expenses and traveling, it is ideal to acquire the cheapest rates with the highest credit limit. In addition to higher costs, lower credit scores may result in a stricter payment schedule. Creditors may have little tolerance with clients who have poor credit ratings.

There are ways to improve a bad credit score. There are debt consolidation programs to help you combine and pay off your debts, and creditors recognize the assistance of a credible third party as an indication of assured payment. As a result, interests rates and minimum payments can be lowered, making it easier for the person in debt to meet obligations.

Pre-paid credit cards provide card holders the benefit of a credit card; and since most transactions may be reported to a credit agency, a person may improve their credit score if he/she is wise about their purchasing behavior.

Most financial transactions are reported to at least one of the three national credit bureaus. Experian, Equifac and Transunion are the three main reporting agencies authorized in the United States. Financial institutions commonly review these reports and there is no reason you shouldn't do the same.

Even if you have great credit or know your credit score, you should continually monitor your updated credit score and track any activity on your credit report. The explosive growth of the Internet has resulted in increased identity theft and credit fraud. Many people were unaware that they were victims of credit theft and fraud until it was to late and they were left in a financial bind.

An effective way to avoid becoming a victim of credit theft is to ensure that your credit cards include fraud protection to protect yourself from any unauthorized purchases made on your card.

All errors that affect your credit or result in fraud are reflected in your credit score. To entice consumers to view their credit scores, some companies offer a free credit score for up to 30 days. Many companies offer a 3-in-1 profile that displays your credit rating from all three major credit agencies. Nearly all credit ratings feature online access, tips to improve credit scores and emails of any credit updates. Experian, one of the three major credit bureaus, now has its own service, called Credit Expert, available to customers interested in maintaining or improving their credit score.

There are certain pieces of information that you should check in order to ensure that all three credit bureaus have accurate and timely reports. Any of this information could negatively affect your credit:

• Personal Information
• Discrepancies
• Omissions
• Out-of-date information
• Who has been looking at your credit file (specific banks, employers, etc.)
• Any derogatory or negative information that may have been added
• New accounts that have been opened in your name

Pay close attention to any new accounts or purchases made in your name, and who has been loking at your credit files. If you do not recognize certain names or firms, there may be a chance that you may be a victim of theft or fraud.