Steps to avoid a plunging credit score

LOS ANGELES Fair Isaac and Company, the originators of the FICO score, are the only ones with the exact formula for getting the highest score, much like the Coca-Cola Company. But when ABC7 Eyewitness News teamed up with Consumer Reports, we came up with a few ways to improve your score.

Home foreclosures are up along with 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," says Greg Daugherty of Consumer Reports. "And available, unused credit is one of the key components of your credit score."

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

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

Second, be careful when applying for loans. Too many loan applications within too short of a time span 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," adds Daugherty.

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

"New creditors don't like to see old creditors getting only a partial payment," he says.

Partial payment, though, is better than nothing. Don't miss payments on any bills, even those you may conside "less important." Any bill of $100 or more that goes to a collection agency shoots a hole in your credit rating. Credit scores can range from 300 to 850 points; the higher number, the better.

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