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How to improve your credit score

Last reviewed: May 2009

You might be tempted to pull out the scissors and slice up your plastic. But there are better ways.

First, know that closing a line of credit before paying it off will lower your credit score. Fair or not, it sends a signal to potential lenders that you had some financial problems and felt obliged to shutter your account. Closing too many credit cards at once can temporarily ding your score by increasing your debt-to-credit ratio. Craig Watts, spokesman for, says your score will recover in a couple of months. To close a card, start with newer cards first. If the card is older, keep it open. Keeping cards that you do not use helps lengthen your credit history, which counts in your favor.

Besides, as Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling (NFCC), warns, "We're living in an economic environment where cash is king. Treat credit responsibly. New credit is extremely hard to get."

Of course, the most obvious way to improve your credit score is to pay your bills on time and stay under your credit limit.

Lenders also like to see consumers using no more than 30 percent of their credit lines. That's known as your credit utilization ratio. So if you have a card with a limit of $1,000, ideally you'll owe no more than $300 on it.

There is still a risk that your credit-card company might lower your limit to $400, making your credit utilization ratio less attractive than it had been and hurting your score. But you would still owe a relatively modest amount and so would probably be considered less of a risk to anyone making up their mind about whether to approve you for a loan to buy a new house or car.

If you're considering hiring a credit-repair company, don't. As a general rule, those companies, especially ones that charge a fee up front and promise results, should be considered potential rip-offs—they can't possibly know that they will be able to deliver a positive outcome for you. Besides that, they won't do anything for you that you can't generally do on your own. Dealing with debt-settlement companies is an even riskier gamble.

If you want help with managing your debt, a safer strategy is to start with the NFCC (, a well-regarded nonprofit organization with member branches across the country. Note that when you sign up for a debt-management plan, your credit score might fall because lenders see it as one step away from bankruptcy. But that shouldn't discourage you. You first have to take care of your debt before you can save your credit score.