With the recent hubbub about subprime loans, many folks are wondering how they will be affected. One strategy you can (and should) take to minimize the effects of tightening lending standards is to groom your credit report. Here are a few quick tips on how to make your credit look good to a lender.

1. Make your payments on time. Approximately 35% of your credit score is based on your payment history, so make your payments on time. If you have lates, do your best to bring those accounts current and keep them that way!
2. Keep your available credit high. 30% of your score rests on this figure. Ideally, 90% or more of your credit balances should go unused every month. To determine your available credit, add up all of your credit card limits and all of your balances. If you have total limits of $12,500 and balances of $2,200, you have 82.4% of your credit available to you ($10,300 available / $12,500 limits).
    
   To increase your available credit, you can either a) pay down your balances (generally the best strategy) or b) increase your limits. I have even recommended that some clients apply for new credit cards for this purpose….but remember that you should try not to apply for new credit if you are within 6-12 months of applying for a mortgage or auto loan.
3. Pay off new collections and let the old ones go unpaid. When you fail to pay a bill, it goes to collections and damages your credit. The ill effect diminishes year-by-year, though, until after about 7 years it disappears entirely.
    
   Say you had a medical bill for $253 six years ago that you never paid. If you find that unpaid account showing as a derogatory item on your credit report, you may be inclined to pay it off. Unfortunately, that will cause the account to show as a very recent paid collection - and will hurt your score more than a six year old unpaid collection. If your collection is less than two years old, I recommend that you pay it immediately, otherwise let it go.
4. Build your credit depth. Thoreau’s “simplify” maxim does not apply to credit history; more is generally better. If you only have a handful of accounts and make a late payment on one of them, your credit score will drop dramatically. If on the other hand, you have years of solid payment history on two or three dozen accounts, one late doesn’t impact you as much. Having a few credit cards and paying them off every month will build credit depth, good payment history, increase your available credit, and show that you are responsible with credit: a grand slam!

The bottom line is that having a bunch of credit cards and paying them off every month will build credit depth, good payment history, increase your available credit, and possibly earn incentive rewards at the same time: a financial grand slam!