debt

5 steps for improving your credit rating

Slowly close out unneeded or unused credit accounts. Most experts recommend carrying between two and four major cards. But be cautious when canceling because closing accounts can negatively impact your credit score, commonly called a FICO score. FICO considers the ratio of total debts to total available credit. A good rule of thumb is to keep your revolving debt to 50 percent of your available credit.

Remember that cutting up the card doesn't close out the account.

Other tips:
  • Close out your newest accounts so that you don't lose your longer credit history.
  • Close out accounts slowly over several months.
  • Verify that all accounts you've closed are reported as "closed by consumer" for the best report.
  • Even if creditors offer to raise credit limits, allow yourself only moderate credit limits.
  • Keep your balances low and avoid revolving balances.

5. Add stability to your credit file

You can also work to add positive information and show stability in your credit file.

You may have been denied credit because of an insufficient credit file, yet you have credit. Some creditors -- such as travel, entertainment and gasoline card companies, local banks, and credit unions -- may not report your credit history to the credit bureaus. You can try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. Not all will do that. So, in the future, before opening a new account, ask if your on-time payments will be reported monthly to a credit-reporting agency, recommends Myvesta.org.

If you have really bad credit -- perhaps even filed bankruptcy -- don't let your credit status go dormant. "The faster you begin to re-establish good credit, where you pay on time, every time," says Craig Watts, consumer affairs manager of Fair Isaac Corp., "the faster you'll improve your credit score."

Build a solid credit history. A secured credit card offers those with no credit and those repairing their credit this opportunity. Shop around for the best deal available, but limit your applications. Credit bureaus look at how many new accounts you've opened, and the number of "inquiries" for new accounts that are listed. A sudden flurry of "inquiries" results in a lower score because many times consumers anticipating money problems increase their credit lines. Inquiries made by creditors wanting to make "prescreened" credit offers are not counted.

Lastly, open a savings account at your bank. This shows creditors that you are working to save and that you have reserves to repay debts.

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