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Five Ways to Improve Your Credit Score [11/23/2006]

Five Ways to Improve Your Credit Score

By Rick Rahim

For sure, building good credit takes patience. Pay your bills on time. Keep your card balances low. Over time, you'll be rewarded with a high credit score.

But is there a quick way to raise your score? There can be.

Here are five methods to improve your credit score.

1. Increase Your Credit Limits

30 percent of our FICO score is based on credit utilization, or how much of your available credit you're using. Most credit gurus insist you keep your balances to increase your credit score.

The first method involves asking your creditors for a higher credit limit. The increase in available credit should automatically lower your credit utilization ratio.

It's hard to tell how much of a boost your credit score will get. It depends on many other factors, including how long you've been using credit and how responsibly. But whatever you do, don't run up higher debt.

2. Pay early.

Even if you pay off your cards in full each month, your credit report still shows that you owe money.

Why? Each month creditors report your latest balance to the credit bureaus. The amount reported is the balance of your bill before you pay it.

That's the amount that will appear on your credit reports and will be picked up by the FICO formulas. So if, for example, the balance on your latest statement was $1000 and you sent the credit card company a $1,000 payment, your credit report will show you had a $1,000 balance for that month, not $0.

To get around that, pay your card bills before the next statement date.

The date is usually printed on top of the bill, right alongside your due date. Because of the grace period creditors give -- usually 20 days or so -- your statement date is typically 20 to 25 days before your actual due date.

You can find out when your next statement date is by logging onto your credit card account online or calling your creditor. Once you know your statement date, pay off the full balance a few days in advance. Do this properly and the creditor will report $0 to the bureaus, bringing your credit utilization as low as possible.

3. Use Your Old Cards Often

The longer your credit history, the higher your credit score can be. (Assuming you're paying your bills on time.)

If you haven't used a credit card for more than six months, the creditor may start reporting the account as inactive. That doesn't mean the account will disappear from your report. But when an account is inactive, it isn't factored into all FICO formulas. The credit utilization formulas sometimes don't pick up inactive accounts. Even if your balances are $0 on these cards, it won't be reflected in your credit score.

4. Ask a Friend to Help.

If your credit history isn't very long or spotless, adding a credit account with a long, positive credit history to your report can help your score.

Ask a friend or relative to make you an authorized user of a credit card they've had for a long time. If you get a card with your name on it that is based on their account, the whole entire history from day one will show up on your report as well. "That's pretty beneficial.

Because you are only an authorized user, you may not be liable for any card balances. And the original card holder doesn't have to give you the card itself, so they can be sure you won't run up debt in their name.

5. Pay Your Utility Bills

It used to be that you had to skip paying your utility bills for months for that negative information to show up on your credit report. Most utility providers -- from phone companies and wireless carriers to electric suppliers -- only reported delinquent accounts. Not anymore. Many utilities have started reporting to the bureaus. This means paying your electric and cable bills on time can be just as important as your credit card bills.

Rick Rahim is the President of the Online Business Bureau.

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