With all the attention paid to the importance of a high credit score, most financially conscientious Americans are aware of the more common actions that can have a negative impact. Miss or make a payment late, carry and excessive amount of debt or default on a loan and you’ll see your score take a nosedive. Seemingly innocent actions can also be devastating to your score.
Here are several mistakes you may be making that prevent your score from soaring:
Avoiding Credit Cards
Not using credit cards may seem like a wise move that will lower overall debt, but it’s not. The credit bureaus cannot make an honest assessment of your risk to lenders, if you have little or no credit history to base it on. Credit cards are a necessary part of establishing a healthy credit history and earning an excellent credit score. The key is to manage them well, making payments on time and using less than 40 percent of your available credit limit. Keep multiple accounts active by using them for small purchases every now and then and reap the benefit of an increase in your credit score.
Closing Credit Card Accounts
Another seemingly rational move toward a high credit score is the closing of a credit card account. While successfully paying off a credit card balance is reason to be congratulated, if you choose to close that account, you will lower your available credit limit and see your score drop. The amount you have available to spend when compared to your outstanding credit card debt is called the credit utilization rate, which needs to be less than 30% to earn an excellent credit score – closing an account will raise it.
Another factor to consider before closing an unused account is the value of a long credit history, estimated to be 15% of your FICO score. This is another benefit for holding a credit account over many years, even if you don’t use it; closing an older account may be detrimental to your credit score. Use each credit card for a small purchase every year to keep the account active.
Credit Card Account Types
Retail store charge accounts and rent-to-own furniture accounts are two poor ways to borrow. They work just like a standard credit card but typically offer a credit low credit limit that is easily used up. Credit reporting agencies frown on accounts that are maxed out, giving them reason to doubt your ability to pay back your debt.
Multiple Outstanding Balances
Having too many large credit card balances will have a negative impact on your credit score, especially when they include multiple department store credit cards. Avoid the temptation to open an account simply to get a discount on the purchase you’re making. While you may save a few bucks, when the retailer checks your credit report a hard inquiry will be triggered on your report and depending on your financial condition, may drop your score by up to 35 points. In addition, high interest rates that are part of these so called special offers will make it harder to pay off, if you rack up a high balance.
Knowing your score and working to maintain an excellent rating are essential to securing future loans or a mortgage. While all of the particulars that go into making up a credit score may not be known, common sense and responsible money management go a long way to secure an excellent one. It’s up to you to keep an eye on your own credit history, review your credit reports and immediately report any errors you may find.
For more helpful tips and advice, visit ASAPCreditCard.com. Or, click here to see a complete list of all the top credit card offers.