Keep your credit score from taking a major hit

It's time to devote another column to answering your e-mails, because I know the readers below aren't the only ones worrying about their investments and wondering how to keep their credit reports clean.

Q: I've relocated to the United States after spending 30 years overseas. I have no credit history here. How can I begin creating one? — Shannon in Chicago, Ill.

A: What you need is a secured credit card. It looks like a credit card and works like a credit card, but the difference is that you deposit a sum of money with the card-issuing company and that becomes your credit limit. The best-secured cards will also pay interest on your deposit. As long as you don't pay your bill late or go over your limit, the card should automatically convert into a regular credit card 18 to 24 months down the road. Voila, you have a credit history. You can find a list of secured cards at cardweb.com.

Q: How does canceling a credit card affect your credit rating? I really don't want to hold on to a particular card, but I am afraid canceling it will negatively affect my overall credit rating. — Pam in Long Island, N.Y.
A: It's not just an urban legend that canceling credit cards dings your credit score. That's  +because about one-third of your score is made up of something called your utilization ratio, the amount you have borrowed divided by the amount of credit you have available to you. By canceling a card, you shrink your credit line (the denominator), so the ratio takes a hit.

If you really want to get rid of this card — and there are lots of reasons you may want to, annual fees and high interest rates are just two — make sure that you're not planning to apply for a big loan on a car or a house in the next six months. Then, pay down a little bit of debt (the numerator) at about the same time you cancel. Don't cancel any other cards for the next few months and it should be a wash.

By Jean Chatzky

TODAYShow.com contributor