It takes a lot of work to keep a decent credit score. A great credit score takes years of paying your bills on time, balancing the right amount of debt to available credit and keeping your spending under control. However, you may be doing some things to sabotage your credit score even though you think you are doing something to improve it.
Don’t fall for the following traps that could be doing your score more harm than good.
Closing Credit Accounts
You might think that closing your old credit accounts might be helping your credit score. Some people think that closing accounts that once had a delinquent reporting will improve their score or closing the ones with the less than favorable histories will look better on their credit history. Unfortunately, the opposite is true. Part of your credit score depends on the amount of time you have had credit as well as the average age of each credit account.
The better the average, the higher your score is going to be. Besides, you cannot erase bad credit by closing accounts that you have had problems with. It stays on your record for several years and it only hurts your status when you close those accounts.
Trusting Your Credit Report
Too many people never bother to check their credit report. Some check it every year or so but even fewer check their credit histories every six months. There are several reasons why you should check your credit report a couple times each year. For one thing, credit reporting agencies make mistakes.
They might have information on your credit report that is inaccurate and negative. They may even be listing items on your report that have nothing to do with your history because they mixed up your name with another name or some other mistake. There may even be items on there that you have paid and they are still marked as unpaid.
Consolidating Your Debts
Consolidating all of your debts into one payment through a debt consolidation company sounds like a great way to solve your credit problems but it only adds to them. Hiring a debt consolidation company can drop your credit score drastically because it shows that you are unable to handle your accounts effectively. In addition to that, these companies often charge fees and the repayment terms are stricter than if you would just work with your creditors yourself.
Applying for New Accounts
Getting a bunch of "pre-approvals" for credit cards and department store cards in the mail may seem exciting. You can sign up for a bunch of new accounts and go on a spending spree! However, opening several new credit accounts in a short period of time damages your credit score significantly. Keep your credit score at a decent level by only opening new accounts periodically and only when you need to.
In the case of your credit score, the things you don’t know can actually hurt you. Be smart about your credit and your finances and you should be able to keep your score in a decent range.
Annie blogs on finance topics.
Image: _Dinkel_ on Flickr