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By "Today" financial editor
updated 4/18/2004 8:54:16 PM ET 2004-04-19T00:54:16

Q: What path do you take to get a good credit rating when your credit rating is at the worst-case scenario?

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A: Your credit score changes over time with your credit patterns. Credit bureaus weigh the events on your credit record from the last two years more heavily than events further in the past. For example, the fact that you paid your phone bill late four years ago will matter less than the fact that you've paid the bills on time since then. Events dating back seven years or more are dropped from your record.

One of the most important things to creditors is that you pay your bills on time. So, start a pattern of on-time payments. Even if you don't have the money to pay off your credit cards, make sure you at least meet the minimum monthly balances. Do this month after month, and your credit score will slowly begin to rise. Also, don't hit all your credit limits (using 80 percent is a sign you're stretched), don't apply for new credit, and close accounts you aren't using, as lenders may see them as a risk that you might go on a spending jag.

Naturally, holding less debt will improve your credit rating and make it easier for you to make monthly payments. Pay off as much as you can from your savings account, since you're paying your debtors much more than you're earning on interest. You may want to consider selling assets to get your credit rating back on track.

To chip away at credit card debt, pay off the card with the highest rate first, while paying the minimum on the rest—and then cancel that card. Then, move on to the card with the next highest rate. Consider consolidating to a low-rate card, but be careful of low "teaser" rates that will shoot up later. Sometimes, if you call or write your creditors and tell them why you are having trouble staying on top of things, they'll lower your rate.

A credit counselor can help you figure out where to begin if you're overwhelmed. Try the National Foundation for Credit Counselingor Myvestato locate a free or low-cost counselor near you. Avoid any organization that asks for money up front. Also, order your credit reports from the credit bureaus to learn exactly where your credit stands and why it has its current rating

Jean Chatzky’s Bottom Line
This week: What's your credit score?
Ever since you've had credit, the country's three largest credit bureaus have been keeping tabs on how you manage it. Managing it poorly can stop you in your tracks when it comes to dealing with the rest of your financial life. A bad credit history (which includes late payments, exceeding your credit limits, and applying for more credit on a regular basis) can also result in your having to pay higher interest than average whenever you apply for a loan. Here's an example: If mortgages are averaging 7.5 percent, for instance, and you've got a below-average credit score, you may be asked to pay 9.5 percent.

How can you improve your credit score? Cancel the cards in your wallet that you're not using (hold on to the ones you've had the longest, if possible), use less than 50 percent of the credit available to you, don't apply for additional credit cards in the six months before you're going to start shopping for a house and a mortgage, and-of course-pay your bills on time and without fail.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Copyright © 2004. For more information, go to her Web site, www.JeanChatzky.com.

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