Many responsible consumers today are more aware of their credit score and check it on a regular basis, even if only to check for instances of identity theft. It seems that people are always looking for ways to improve their credit in hopes of obtaining the perfect credit score, but they do not consider the things they may be doing that actually cause more damage to their score.

Following are some examples of actions you might be considering, and why you should think again.

Canceling a credit card can actually lower your credit score, not to mention affect your interest rate if you cancel it before paying off the balance. It is always a good idea to keep the oldest credit card you have open, because it shows your long-term credit history. Keep your oldest and best accounts open, and close out newer accounts gradually. It is probably not a good idea to close them out if you plan to run your credit anytime soon.

Paying off any collections that show up on your credit report will adversely affect your score, because it will update the delinquency already on record, instead of leaving it at the original date (which could be years ago). It will then become a fresh collection. It is always better to pay down than to pay off.

Paying off credit cards each month may actually lower your score. It is better practice to let a little roll over each month, even if you only keep a few bucks as the balance. A low balance on your account will still shows that the card is active and that will figure into your credit score.

One more thing that many people have not thought of is their current credit cards which may have been affected by recent regulations, as well as their home equity lines of credit that have been frozen due to declining property values (not because of payment issues). This may have unknowingly affected your credit score ratings if the balance is high and the credit amount available has been lowered. You may have fallen into the category of accounts with higher than 50% of the credit limit. If so, then these will be the accounts that you will want to pay down first.

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If you have recently received a copy of your credit report and noticed some errors, you may not be sure about how to remove the mistakes from your record. It is very important that you take steps to remove any errors on your credit report that negatively affect your rating on the credit score scale (an account that does not belong to you, for example). Knowing who to contact and what information to provide is half the battle, so following is some information to get you started.

Contact the reporting credit agency in writing and explain the error. Provide copies (not originals) of any supporting documentation you may have. If you have more than one item in dispute, you may want to provide a copy of the page(s) of the report showing the error, with each error circled and numbered (#1, #2…) and number the corresponding support to match. Make a copy of your letter for your records (hold with your original documentation) and send it via certified mail (return receipt requested). You can visit the FTC’s website to view a sample letter here –

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm

You should also contact the merchant/creditor to dispute the item and again, include copies of your support to prove your case. Check your last bill, or call them to find out where to send your dispute letter, since the address is usually different from where you would send payments. Make sure you include your full name, address, telephone number and account number in the letter. Don’t send a copy of any page of the credit report.

Once the credit agency has finished investigating your claim, they should respond in writing – usually within 30 days. If the result is in your favor, you should also receive another free copy of your report (which doesn’t count against your free yearly report). In addition, they must also report the inaccuracy(ies) to the other national credit agencies.

If you haven’t seen a copy of your credit report lately, you should! Everyone is entitled to one free report per year. To get your copy via the web, go to annualcreditreport.com, or you may call 1-877-322-8228. You can also get a form and mail it to the Annual Credit Report Request Service, visit www.ftc.gov/credit to find out more.

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If you have been turned down for a loan because of your credit score recently, you are not alone. Lenders are requiring higher credit scores than in the past in order to qualify for a first mortgage. For instance, if you have a minimum credit score of 620 and can document your income, you may qualify for an FHA loan up to 97.5% of the property’s value. Anything below 620 and your chances of getting a loan dwindle – if you do get lucky enough to find a lender, you will probably have to jump through a number of hoops and come up with some deposit money. Everyone knows that to get the best mortgage deals today, you need to have top-notch credit. With this in mind, you should do everything possible to improve your credit score, if it is in that low 600 range.

Following are a few important things you should do to improve your credit score:

Always pay your bills on time. – This is the most important thing to remember. Late payments can adversely affect your score by up to as much as 100 points.

Pay down (but don’t pay off) credit card bills. It is important to pay down your credit cards, especially if you owe more than 50% of your credit limit. Common sense would tell you that paying off the debt entirely would be even better, but surprisingly it is not. Your goal should be to owe 30% or less.

If you do not have a credit card, or don’t show any credit, consider getting a secured credit card (if you cant get a “real credit card”) – this will help you to attain credit.

Car Loans, Student Loans and Mortgages – Treat these just as you do credit cards, pay them down as much as possible. While paying them off is good, paying them down will help your score more in the short term.

Dispute errors on your credit report – If you have a recent copy of your credit report and you notice some important errors, they should be reported to the credit bureau. For example, your ex-spouse’s account (their own and not a joint account) is showing up on your credit report, or there are late payments/collections showing that are not yours.

It is good practice to check your credit several times a year, in order to be aware of your score and to check for any fraudulent activity. Having the knowledge of your credit rating, and where it stands on the credit score scale, along with what is acceptable to lenders today, will only make life easier when you need to borrow money.

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