Six Steps to a Higher Credit Score

First Step: Read Your Credit Report

The first step to raising your credit score is to order your credit report: the roadmap used to calculate that score. Your report is a snapshot of your financial and personal life on a given day. It should factually reflect your outstanding credit, your payment history, the status of your credit accounts, and any information that can be found in public records.

You can request one by visiting www.annualcreditreport.com or calling one of the three main credit reporting agencies: Equifax, Experian, or TransUnion. You're entitled to one free report a year.

Next: Second Step

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Second Step: Fix Errors

When you get your report, first check your personal information -- name, addresses, job history -- to be sure your file hasn't been merged with someone else's. Then check the accounts listed to make sure none belongs to someone else or is listed more than once.

If you discover any mistakes, send a written letter to the credit bureau explaining the error and how you think it should be corrected. The agency has 30 days to respond to your challenge. For simple errors, that may be the end of the matter.

Next: Third Step

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Third Step: Disputing False Claims

Your report may contain errors that aren't easy to fix. Some consumers walk away from billing disputes with creditors when they're confident they're right -- but if you ignore the situation, a creditor may report a lack of payment to an agency. Such negatives can get a future credit application rejected, even if the negative mark doesn't truly reflect your credit history.

To correct such inaccuracies, you may need to contact the creditor directly. After you report an error to the credit-reporting agency, you have 60 days to get the creditor to correct the information. If you're not satisfied with its response during that time, contact the credit-reporting agency again, and request an additional investigation.

Next: Fourth Step

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Fourth Step: When to Just Pay Up

Battling with a creditor over a bill could severely damage your credit score. Credit-scoring companies must investigate your complaint, but they only temporarily suspend a negative mark. And ultimately, they usually side with the vendor.

If the amount you're disputing is small enough to pay off without financial distress, you may be better off paying the bill and taking the vendor to small-claims court for a refund. A $30 or $50 dispute isn't worth hurting your score.

But if the amount is much larger, and you want to keep fighting it, tell a potential creditor to expect the negative report, and explain why you won't pay the bill. A dispute might prevent you from getting the best interest rates -- but an explanation could help.

Next: Fifth Step

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Fifth Step: Don't Max Your Credit

Ideally, to earn the best credit score, you should use only 10 percent to 20 percent of your credit and pay all bills on time. But you don't have to pay down all your credit cards to zero for a good score; by paying a card over time, you can prove you know how to use credit wisely. In fact, you shouldn't avoid using cards and paying for everything with cash, because having no credit history will lower your score -- even if you don't have any debt!

Another common mistake: canceling credit cards to avoid using them. Doing that reduces your available credit, and raises your debt-utilization ratio -- how much debt you have, versus how much credit -- which can lower your score.

Next: Sixth Step

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Sixth Step: Pay Your Bills Ahead

If you already have low debt and a stellar payment history, but you want to perk up your score before applying for a major loan (like a mortgage), pay your monthly bills in advance.

If you pay your cards in full each month, those payments are made after the report has been sent to the credit reporting agency (right after the end of the billing cycle) -- so your outstanding debt looks higher than it is. But paying your total bill before you're actually billed will help your score. Check your balance online, or call your credit-card company, to find out what you'll owe; try this for a few months, and you'll see an improvement in your score.

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