Credit ratings reflect your suitability to incur and service debt (i.e., take out/repay loans). Credit-worthiness reflects not only your current financial health, but also your historical bill-paying performance. To protect your rating, pay promptly if you've fallen behind in bill payments and examine your credit-card past to determine what can be repaired.

Definition

Know the basics. A credit rating is a published ranking, based on a credit bureau's financial analysis of a person's financial history and ability to pay existing debts. The rating matters chiefly because banks and other lenders use this information to determine loan eligibility. The scoring methodology--and, potentially, findings--vary from one credit bureau to another.

What's Reported

Know what the credit rating reflects. The score is not based on your earnings or savings, but on your bill-paying history, including how much of a credit card balance you carry over time. The rating company knows the amount of a bill you paid, based on the most recent statement. What's more important is how much available credit you've used. It's best to use less than half--in terms of all your expenses--of your combined (if you have multiple credit cards) credit limit, the Wall Street Journal says.

Methodology

Crunch the numbers. Different credit bureaus calculate credit scores in different ways and assess criteria in different ways. Being in the clear with one doesn't necessarily apply across the board. Criteria can include how close you are to your limit on each card, how much borrowing you've done against your current credit card limit and even how high each credit card bill is.

Nonessentials

Know what doesn't matter: every detail of your credit history/status; whether you're carrying an unpaid credit card balance; how many credit cards you apply for; and (potentially) which company's score information you buy (because that's not necessarily one a bureau will see).

Essentials

Stalk the calendar. At least 35 percent of your credit rating reflects the consistency with which you've paid your bill--including the minimum on your credit cards--on time. Any lapses, even if you make good on them, hurt your rating. In fact, "One late payment will ding your score for up to a year, very late payments can hurt you for two or three years, and collections and bankruptcies can sting for up to seven years," the Wall Street Journal reports. Fortunately, most credit card companies don't report late payments to credit bureaus until 30 days after the payment is due or until the customer has missed two payment-due dates.

Damage Repair

When necessary, eat crow. If you've missed payments, a little humility may be in order, especially if you anticipate needing a loan. Consider calling the company, apologizing and promising to make amends (payment) forthwith and follow through. Such a gesture may win you a break. "Many companies will waive or reduce fees the first time a good customer makes a mistake, and they may even agree to withhold reporting the infraction to the credit bureau," the Wall Street Journal says.

Source:

Wall Street Journal: Credit Scores--What You Need to Know Now

Resource:

U.S. News & World Report: Tips to protect credit rating