Forget making changes to your credit card usage – it’s what you don´t do that can increase your credit score (or at least keep it from going south).
Just as you can´t buy happiness, you can’t buy a high credit score – the only way to get one is to demonstrate financial responsibility. “Creditors don’t care about how many millions you may have in your investment account, it’s how you use your credit.
Steer clear of these 10 things experts say can mangle your score.
(1)Don’t avoid using credit.
If you don´t use credit, you won´t have much of a credit score. “A credit score is an important tool companies use to protect themselves,” Sweet says. The lower the score, the higher the risk, and this can affect whether or not a loan is approved.
(2)Don’t miss payments.
Paying a bill late will hurt your credit, but missing a payment will damage it even more. “If you do so, you can´t make it up,” Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.
(3)Don’t limit loan types.
Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit suaveness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. “It´s 10% of the score,” says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.
(4)Don’t close unused credit card accounts.
Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you´re using most of your available credit and this “utilization” will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.
(5)Don’t be a credit tease.
Don´t run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. “This signals that you´re desperate for credit and don´t have enough cash available for your purchases,” says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.
(6)Don’t rob Peter to pay Paul.
Don´t charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.
(7)Don’t get on the call list.
When a debt turns into a collection account, it´s an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.
(8)Don’t forget the little things.
That library fine you didn´t pay or the health club contract you signed but didn´t honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.
(9)Don’t have a balance of over 30% of your available credit.
Owing money on credit accounts doesn’t necessarily mean you’re a high-risk borrower with a low credit Score. However, when a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. Part of the science of scoring is determining how much is too much for a given credit profile. 30% of your FICO Scores take into account this percentage. Note that even if you pay off your credit cards in full each month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
(10)Don’t give up.
If you have late payments, missed payments, defaulted loans, and similar credit mess-ups in-between, don´t give up and think that your credit history is ruined. Although offenses like these generally stay on your credit history for seven years, the recovery clock doesn´t start ticking until you have one full month of paying all of your debts on time, says Sweet.
