With cumulative U.S. consumer debt having fallen to $11.1 trillion at the end of 2011, it is clear that households across the nation are benefiting from reducing their average debt liability. For instance, 60-days plus past due delinquencies fell by 29% in the bank credit card lending sector, and there were also significant improvements in relation to the timely repayments of both first mortgages and retail credit cards. these figures suggest that consumers can look forward to improving their credit scores significantly in 2012, so long as they follow several considered and financially prudent steps.

SEE: 5 Keys To Unlocking A Better Credit Score.
Create a Plan: Assess Your Debts Before Making Payment
In terms of improving your credit score quickly and effectively, your first step should always be to understand the full detail of your existing debt. There are two key reasons for this, with the first being that your credit report may well contain erroneous information or be inclusive of debts that have either been settled or disputed. In identifying these, you can remove them from your account and improve your credit rating instantly. As a consumer, you are also entitled to access three free credit reports annually, with one available from each of the three nationwide credit reporting agencies. This can provide you with all of the information that you need, leaving you with a clear list of your outstanding debts and how much is repayable for each.

Secondary to this, is the consideration of interest repayments, which can accumulate each month on individual debts and make them extremely difficult to settle. Highlighting these debts gives you the opportunity to approach the respective lenders and attempt to either freeze or drastically reduce affiliated rates of interest, and then agree on a fixed monthly repayment. This practice will ensure that the vast majority of the money that you repay goes towards clearing the original loan, rather than simply reducing the interest that has been accrued over time. (For more information, read Understanding Credit Card Interest.)

Do Not Cancel Your Credit Cards: Learn How to Use Them Responsibly
Given the significant and consistent fall in the levels of U.S. consumer debt, it should be no surprise that credit card debt alone fell by nearly 10% in 2011. All 50 states showed a noticeable reduction in credit card debt during the last 12 months, as citizens nationwide got to grips with their finances and made significant strides towards settling outstanding accounts. However, while it would be a natural and understandable reaction to cancel a credit card once you have settled any outstanding debt, this practice can actually have a negative effect on your overall credit score.

Rather than canceling your lines of credit, it is far more prudent to learn how to use them responsibly and develop a positive credit history. There is also the issue of revolving utilization, which refers to the percentage of a revolving credit card limit that is being made use of at any given time. This is measured over all of the cards that are registered in your name, so each time you cancel one of a series of credit cards you are effectively increasing your overall utilization percentage. This will cause your credit score to decrease, so retaining open lines of credit will help to improve your rating significantly.

Be Proactive in 2012: Pay Your Bills Ahead of Time
It is likely to be more than sheer coincidence that consumer debt in the U.S. has fallen while the level of disposable personal income has soared. In the final quarter of 2011, disposable income climbed by roughly 0.3% and equipped consumers with additional resources with which to tackle their outstanding debts. While the importance of being able to make regular repayments on your agreements cannot be underestimated, as a debtor you should also look to be proactive in your dealings with creditors and ensure that you can pay what is owed ahead of schedule.

Not only will this ensure that you begin to build a series of positive transactions on your credit report, but it will also keep your outstanding balances low and help to develop your overall credit score. As a way of managing this process, look to review your proposed monthly repayments and make sure that they can be made in line with your level of income and without compromising your general standard of living. Even if you are only able to make minimum repayments on your outstanding debts, this consistent approach will have a positive impact on your credit standing.

The Bottom Line
While there is no magic formula or quick fix for drastically improving your credit rating, these steps will enable you to take control of your debt repayments and consistently improve your score. The most significant requirement is that you are willing to face up to your debt and tackle it in a proactive manner, and then commit yourself to making regular repayments to creditors over a significant period. (To learn more, check out Check Your Credit Report.)

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