credit

The secrets to improving your credit score

The longer the history, the better. Therefore, having zero balances on old accounts can help you. Close those accounts and, in the short term, the scoring algorithms will weight your newer ones more heavily. And if your newer accounts aren't in great standing, you have a double whammy -- a shorter credit history and problems such as late payments or high balance-to-limit ratios -- on your current accounts.

4. On the other hand, get rid of those old accounts. 
If you have the luxury of time to improve your credit score -- because you're not applying for a loan in the next 90 days, for instance -- you should close some of those old accounts, Snyder says.

"In the long run, it will help, because you won't have as much credit available to you," she says. Furthermore, closing unused accounts is a smart way to protect yourself from identity theft.

5. Make sure lenders have accurately reported your balances and your credit limits. 
Sometimes lenders fail to report credit limits, says Sherry Rivera, a mortgage lender with Guardian National Funding in Rockville Center, N.Y. When that happens, the credit reporting agency "sees" the credit limit as zero, meaning that any balance you have will appear as if you're over your limit. As Rivera says, "It is considered very bad to be over."

To find out if your limits are being reported correctly, check your credit report. If it shows the wrong limit or if you're over your limit, call your card companies and tell them to correct it with the credit reporting agencies. Then double-check with the credit reporting.

6. If you pay a debt that's gone to a collection agency, ask the credit reporting agencies to mark that debt as paid as soon as you receive your payoff letter.
"I have seen many consumers that have paid off debt still showing balances three, four and even five years later because the collection companies have not reported to the credit agencies. Always be diligent and follow up," mortgage broker Calimopulos says.
7. But you may not want to pay off that old debt -- yet. 
Surprisingly, doing the right thing can hurt you. Paying off an old debt just before applying for a loan is one of the biggest mistakes borrowers make, says Phoenix Global Mortgage's Jim Duffy. Say, for instance, a $500 bill that you owed two years ago went to a collection agency. You still haven't paid it. Sure, that account is negative on your credit report. But it's also inactive, because it's two years old, Duffy says. Pay it off and suddenly that negative account is active again, and believe it or not, that new activity can cause your credit score to go into a temporary free fall, Duffy says.

Still, loan underwriters don't want to see bad debts on your account, and if the balance is high enough, they'll deny your loan. In these instances, Duffy negotiates with the underwriters, offering to have the home buyer pay off the old debt at closing. That way, everyone's happy: The debt is gone, satisfying the underwriter, and the homebuyer has his house. The credit score still falls, but it no longer matters. And after 90 days, the score bounces back to normal.

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8. If you have to pay something late, choose wisely. 
FICO and the other credit scoring organization assign different weights to loans according to their category. Mortgages count the most, followed by installment loans for cars, college costs and other items. Next comes credit cards and store charges.

If you're forced to make a choice, pay your mortgage and sacrifice the Sears bill. Keep in mind that since credit-scoring agencies consider mortgages and installment loans so important, paying them on time, all the time, is a great way to build your score.

Two of the easiest ways to never miss a payment: Sign up for the creditor's automatic withdrawal, which can reduce your payments by a fraction of a percentage point. Or schedule automatic payments through your bank's online banking program.

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