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Question for the Money Doctors

Question submitted on Apr 7, 2011.

Question

How to improve my credit score.

Answer

The first step is to obtain and review a current credit report.  Beware of offers for "free" credit reports from other web sites or ads (that may actually entail hidden charges or be tied to the purchase of something else).  If you have already reviewed your credit report and want to know how to improve your existing score, here are a few suggestions:

First, review the credit report(s) for errors.  If you find errors, you should contact both the credit rating agency and the organization/company/creditor that reported the incorrect information.  Communication should be in writing.  Be persistent and patient.

Other than correcting errors, improving a credit score in many cases simply takes time.  Paying bills on time and reducing the amount of debt you have are 2 key components.  So where possible, pay off your credit cards or other installment debt each month by the payment due date.  Or if you cannot pay the full balance monthnly, make sure to make payments by the due date and come up with a plan to pay them off fully.  Some banks provide reminders (texts or emails) of when bills are due if that would be helpful.  Also, some people find it helpful to set up automatic payment of bills directly from their bank account so payment due dates are not missed.

Along those lines, pay off other debts when possible (I know, easier said than done!).  If you carry balances on a high interest credit card, pay that off first.  This will help your credit score and also cut down on the amount of interest you're paying.

Finally, closing unused credit card accounts may not have a big impact on raising your credit score. By the same token, opening a lot of new credit card accounts will probably not improve your score either.  The best approach is somewhere in between....perhaps a couple of credit cards that are used prudently, where balances are paid off each month.


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