8 Ways to Tidy Up Your Credit Score

8 Surefire Steps

Nearly two-thirds of U.S. consumers haven't ordered a copy of their credit reports within the past year, according to a recent study by the National Foundation for Credit Counseling. And about one in four consumers say they don't pay all their bills on time -- a surefire way to ding your credit score. Banks are less willing to lend than they once were, and it's getting hard to get a good mortgage rate; anyone with a score of less than 720 can get socked with fees, says Sean Cragg of the Gold Star Mortgage Financial Group in Michigan. "Every point in your credit score can make a big difference."

Even if you're not in the market for a big purchase, like a car or a house, it's a great time to tidy up. Read on to learn eight great tips from insiders on how to give your credit score a cleaning.

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Gather Your Tools

With the credit bureaus allowing one free credit report annually, there's no reason to put off an annual check-up. When'Seiberling'reviewed her credit report and saw how many small companies she owed money to, she realized how desensitized she had become to financial responsibility. "I thought owing little amounts wouldn't make that big of a difference on my credit score," she says. "Once I realized how all of the small debts had amassed into one giant pile of debt, I knew I had to change my ways or live a life of never owning anything worthwhile."

Requesting one personal credit review a year won't hurt your credit, despite a common misconception that it will (although ordering multiple copies can affect your score). Bear in mind that credit reports don't always include your credit score. "And the three main credit scoring bureaus don't receive identical data, so each score will be a little different," says Evan Silverman, C.E.O. of Williampaid.com, an online credit resource for renters.

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Fix Any Inaccuracies

Scary story: Sean Cragg of Gold Star Mortgage recently lined up a loan for a borrower with a longtime steady job, a 20% down payment, and a magnificent credit score of 800. But her latest report included a cell-phone collection account for $170, which dropped her score to 676. She swore the item was an error, but she wound up paying an additional $4,000 in points and fees to get her interest rate down.

One in four credit reports contains a serious error, according to the Public Interest Research Group. To dispute an item with the credit agency, include the item name, associated account number, the nature of the error, and the changes you request, says Sheri Stuart, education manager at Springboard Nonprofit Consumer Credit Management.

Next, request a corrected credit report. "Depending on the severity of the incorrect information on your report," says D. Nicholas Miceli, central market president of TD Bank, "your credit score can improve dramatically."

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Examine Your Revolving Debts

"Revolving accounts include all major credit cards, store charge cards, and store lines of credit," says Michele Brander, credit administrator for the Ent Federal Credit Union in Colorado Springs, Colorado. Each account is assigned a maximum credit limit, but everyone should aim to use only 30% of total credit at once. When that's not possible, try to get the balances below 50%, she says. Using 80% of your available credit, though, is as hurtful to your score as using all of it.

A word of caution: Credit-card issuers have recently been lowering credit limits -- sometimes discreetly. A lowered limit could hurt your credit score, even if your balance doesn't increase, warns Karen Goodfriend, a certified public accountant and financial specialist based in Los Altos, California.

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Be on Time

Twenty-two percent of consumers are paying more bills late these days, especially on utilities, according to a Western Union online survey this year of more than 3,000 respondents. Even a $10 missed payment can hurt your credit score for a long time, says Ken Lin, C.E.O. of Credit Karma, a credit-score management service based in San Francisco. Using such tools as automatic bill-payments can help you hit those deadlines, Lin says. Even paying your bills on time for a month can hike a modest credit score by 20 points, says Ethan Ewing, president of Bills.com.

Seiberling swore by automatic bill payments.'"I set it up on all of my accounts and budgeted out all spending one month ahead of time -- including putting money into savings. I put myself on a strict financial diet, and it paid off."

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Hold Your Cards

The average consumer has eight or nine credit cards. That's too many, Lin says. But it's not helpful to close out accounts you don't use. For one thing, closing dormant accounts shuts down open lines of credit, which reduces the difference between your balance and your limit. (Ideally, your balance shouldn't be more than 30% of your limit.) Closing out an old account could also hurt your score by shortening your payment history, Silverman cautions. Ewing adds, "The longer you hold a card, the more valuable it is in your credit score determination."

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Befriend Your Creditors

If you can't keep up with your payments, ignoring creditors' calls, letters, or knocks on the door is not the solution. Miceli advises a proactive approach instead: Call them to explain your situation -- you've lost your job, for example, or fallen ill -- and what you intend to do to recover. Then ask for assistance, such as a reduction in your interest rate, or a temporary moratorium on principal payment. "Creditors don't want to repossess assets or foreclose if they don't have to," Miceli says.

When Seiberling decided to get out of debt, she'answered her phone even when she didn't recognize the number. "When creditors called, I let them know that I wanted to pay off my debts, but that I didn't have much money to work with," she says. "I let them know that if I had any extra money each month I would send them extra to try and pay the debts off more quickly. Not one creditor denied me. Every one was polite and made arrangements that helped me pay off my debts without putting me in the poorhouse."

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Keep on Scrubbing

"Building a great credit score is like building a resume: it takes time," says Williampaid.com's Silverman. That's not his only analogy: changing your attitude and behavior about your debt is like getting in shape, he says.

What about those credit-repair agencies, which promise a credit clean-up for a fee? Miceli calls the hope for an easy shortcut through one of these agencies the biggest credit score myth. "The road to financial stability typically requires ongoing counseling and can take years," says Avi Karnani, cofounder of the personal-finance site Thrive, a personal finance website.

Before you use a debt-assistance company, he says, check with your state attorney general, local consumer protection agency, and the Better Business Bureau. Make sure it's a nonprofit and a member of the Association of Independent Consumer Credit Counseling Agencies, the National Foundation for Credit Counseling, or the American Association of Debt Management Organizations.

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Sweep Away the Doldrums

The simplest step you can take is also, in some ways, the toughest: "Don't give up on your credit," Lin says. Within a few months, your can increase your score by 50 to 100 points with a very low-maintenance approach. Building pristine credit could take years, but most people can reach creditworthy levels, Lin says, "by simply making all delinquent debts current and maintaining that on-time payment history."

It took Seiberling almost two years to pay off her debt, but in that time her credit score went up by more than 100 points. "Now the name of the game is building up my positive credit so that, hopefully, within the next 5 years I can buy my first home," she says. On her 30th birthday, she'll have lots to celebrate. "I'm so excited that I am entering the next phase of my life debt-free."

Melissa Ezarik is a Connecticut-based editor and freelance writer.

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More on Credit

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' 8 Ways to Give Your Credit Score a Spring Cleaning

' 10 Credit-Report Myths -- Busted!

' 6 Common Credit Dilemmas -- And Their Solutions

' 8 Ways to Boost Your Credit Score

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