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Plan ahead to raise your credit score

If you are suffering from a low credit score and plan to make a credit-based purchase in the future, start working now to raise your score. Why? Because you can't raise it overnight regardless of the misleading ads you might see.

The first thing to do is to understand what your score is now. Try Credit Karma for a free approximate score. I say "approximate" because the site states the score they provide is a "non-FICO" score.

Here are some concrete steps to begin raising your score:

  1. Pay your bills on time. Poor payment history will have the greatest negative impact on your score.
  2. Keep credit card balances low. The next-highest impact on your score is "credit utilization". This is a ratio of your total outstanding balance for all credit divided by the total of all your credit limits. Suppose, for example, that the maximum allowed credit on all your credit cards is $50,000. And, assume that you owe a total of $5,000 on ALL your credit cards. This translates into a credit utilization of 10%. That's good!. 80% would be bad! If you are above 50% now, set your initial target to get below 50% quickly, then target 10%.
  3. Don't close accounts. Don't cancel cards without a good reason. This will help you achieve a good ratio as discussed in point 2 above.
  4. Don't apply for new cards. Keep things stable for a while.
  5. Don't use your cards until you pay down balances to a decent range.

If you have not done so withing the past year, obtain free copies of your credit report from the three major reporting agencies, Equifax, TransUnion and Experian. Start here: AnnualCreditReport.com.

Start now to get you score higher so you can get the credit you need when you need it.