A high credit rating makes it easier to obtain a mortgage, credit cards and auto loans, plus better interest rates, which will save you money in the long run. Here's what you can do to increase your credit score:
1) Correct credit report errors
You're allowed one free credit report each year. If you haven't done it yet, request yours online at AnnualCreditReport.com. Check it carefully for any mistakes, such as past-due or unknown accounts.
2) Pay attention to credit card limits
Avoid charging any one credit card up to (or close to) its limit, even if you pay the balance each month. It's smarter to spread charges on a few cards. Why? Credit agencies look at all your unused credit from all cards, plus that of individual cards, when calculating your score. That's why getting close to the limit on one card can ding your score despite having plenty of available credit elsewhere.
3) Don't cancel credit cards
You earn points for accounts with longer histories, so avoid closing and opening new accounts often. Even if you're eager to close an account you worked hard to pay off, resist the urge. It's better for your credit score to keep it open and either never use it or use it only occasionally, depending on fees and terms.
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Karen Goodfriend is a certified public accountant and personal finance specialist in Los Altos, Calif. She is also a member of the American Institute of CPAs' Financial Literacy Commission.