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How to Raise Your Credit Score

Actively manage your credit rating—a free audiobook excerpt from Money.

By
Laura Adams, MBA,
August 5, 2009
Episode #135

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Today’s article discuss five ways to raise your credit score and explains why raising your credit score will help you get out of debt faster.

What is Your Credit Score?

Your credit score has a somewhat secret life. It’s changing and being manipulated by your financial decisions even though it’s out of sight. One of the reasons you need to be mindful of this underground credit world is because it affects how much credit you can get and what interest rate you’ll pay for it. The better your credit rating, the more favorable and less risky you appear to potential lenders, landlords, insurers, and employers, for example. A good credit score helps them quickly approve your applications and offer you the best credit terms available, which can translate to paying less and saving more—which is critical for getting out of debt and then living debt free.

How Should You Manage Your Credit Score?

Your job is to take the mystery out of your credit rating by pulling back the veil as often as you can. You can get your credit reports from each of the three major credit bureaus—Equifax, TransUnion, and Experian—for free once a year. The best strategy is to space them out, so you get a different one every four months. Put it on your calendar to go to annualcreditreport.com, where you can view or download them. Look for any incorrect personal or credit information and be sure to dispute it with the bureau right away. You’ll notice that your free credit reports do not reveal your actual credit score—unfortunately, you have to pay for those. You can purchase your score from the individual bureau websites or even from MyFICO.com. You don’t need to buy your score from each one, especially if all your free credit reports look about the same. The current price at MyFICO.com for a score report from one of the bureaus is $15.95.

How to Raise Your Credit Score

There are five main ways you can positively influence and raise your credit rating going forward.

Tip#1: Pay all your bills on time. Your payment history influences your credit score the most. Never let an overdue account get turned over to a collections agency. Many companies won’t take the time to report an overdue debt to the three credit bureaus, but the collection agencies they hire usually do.

Tip #2: Keep a good cushion of available credit. That means never max out all your available credit lines. For example, if you have a $5,000 credit card limit, a good rule of thumb is to never let your balance exceed 50% of that amount. Keeping a sufficient gap between your current balance and your available credit line shows lenders that you’re not the type to overextend yourself. It’s better to have two credit cards that each have balances below 50% of your credit limits than to have one card that you consistently max out.

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