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How can I improve my credit score?

Leslie McFaddenq_v2.gifDear Credit Card Adviser,
I recently read an article that gave approximations of the point adjustments for certain actions that cause drops in a FICO score. It did explain that the overall drops were based upon the starting FICO score. When I received a credit card from my credit union in July, my score was 705. I would really like to increase that score, but other than not doing the things that drop my score, I believe there has to be a way to raise my FICO. Is there any way to discover what actions can raise a FICO score and by approximately how many points? Thank you in advance for your assistance. Happy Holidays!
-- Kristine

a_v2.gifDear Kristine,
There's more to the story you referenced, "FICO points revealed." The drop in your score you'd see if you made one of the missteps that the FICO score developer provided as an example, such as maxing out a credit card, depends on your credit profile. A shorter credit history, for instance, might cause the same blunder to have a greater impact on your score than if you had a lengthy credit record. Read the Bankrate article, "How secret score cards affect credit," for an explanation of this topic.

Now to your question about what will improve a credit score. I can't give you any additional point estimates for certain actions because: a) FICO hasn't released them and b) even in the examples that the company already gave, the scenarios were very specific. A blanket statement about score increases that would apply to everyone wouldn't be accurate.

What else can you do besides not pay late or max out your credit cards? Pay down credit card balances. Unlike payment history, where a single delinquency haunts your credit score long after the offense, the damage from a high credit card balance will diminish as fast as the balance shrinks.

"You could have been maxed out on all your cards last month ... and paid them all off this month, and when you pull your score this month, none of your past balances will have any impact on your current score," says Barry Paperno, consumer operations manager at FICO.

How low should your balances go? For utilization, "the lower the better, but something is better than nothing," says Paperno, meaning that a tiny balance is slightly better than a zero balance. That said, try to rotate your cards, as having a balance on too many accounts at once may draw a penalty.

You do not have to pay interest in order to get balances on your credit report. Your credit report will likely reflect the most recent balances from your credit card statements. If these balances are high in relation to the credit limits, you could still hurt your score even if you routinely pay in full.

After you pay a debt off, resist temptation to cancel the card. Shutting off a credit limit can push your utilization higher and lower your score. Read the Bankrate story, "Why closing account hurts FICO score" for details.

Beyond paying on time, charging reasonable amounts and letting accounts age, you should apply for new credit cards and loans sparingly.

The inquiry from the credit check can ding your score for a whole year, even though it will appear on your report for two. The impact to the score doesn't diminish during that first year, according to Paperno.

"The typical inquiry is around five points," he adds. The actual point deduction, if there is one, will depend on your score card. If you haven't handled credit for too long, you might see a bigger drop in your score. If for some reason you went on an application spree for credit cards, at a certain threshold you would max out on score damage from inquiries.

So, besides paying on time and not maxing out your credit cards, try paying down credit card balances or charging less to improve your score. Keep credit cards open if possible and acquire new accounts slowly.

You'll have to pay for your credit score to find out the particular reasons your score isn't higher. You can order your Equifax and TransUnion FICO score from Tip: Use the discount code MYFICO HOLIDAY to get 30 percent off any FICO product through Jan. 30.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more columns by the Credit Card Adviser. To ask a question of the Credit Card Adviser, go to the "Ask the Experts" page and select "Credit Cards" as the topic.

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