How to protect your credit score

October 9, 2009 4:00:46 PM PDT
With unemployment near double digits, more Americans collecting food stamps and foreclosures dominating the housing market, staying financially fit can be a challenge.But you can still protect your credit score, something that can affect everything from your ability to borrow to your ability to get a new job.

Home foreclosures are up, so is unemployment and your credit card bills are mounting. You may hope to improve your credit score by cutting up all those credit cards. But Consumer Reports says that's a bad idea.

"Canceling your credit card can actually hurt your credit score because you give up the available credit on that card. And available, unused credit is one of the key components of your credit score," said Greg Daugherty, Consumer Reports' Money Advisor.

One of the most effective ways to improve your credit score is to pay down balances on your credit cards

"But don't stop using your cards completely. Using a card and keeping up with your payments can be good for your score," said Daugherty.

Second, be careful about applying for loans. Too many loan applications in too short a time can hurt your score, especially if they are rejected.

"Apply for credit in person and ask the loan officer if you qualify before submitting a loan application. If you're going to be rejected, go elsewhere," Daugherty said.

Third, if you're drowning in unpaid bills, seeking debt relief is a good idea, but think twice about entering into a partial payment agreement.

"New creditors don't like to see old creditors getting only partial payment," said Daugherty.

Partial payment, though, is better than nothing. Don't miss payments on any bills, even those you may consider less important. Any bill of $100 or more that goes to a collection agency shoots a big hole in your credit rating.

Checking your credit report, which is used to make up your credit score, is free. We have a link to the site that allows you to request a free credit disclosure here.

Checking your credit score, however, will cost you around $16. We have a link here to help you get your credit score.

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