Knowing what your FICO score is and how to maintain as high of it as possible is an important thing in any credit driven economy. Although this guest post from our friends at Money Supermarket focuses on accidentally hurting your credit score, I want to present the flip side of the coin, which is that you can also accidentally help your credit score. The point here is to know what your credit score is, how it is computed and what you can do to improve and maintain it.
With that said, don’t be discouraged if your credit score is not as ideal or high as you’d like. There are steps you can take to begin building your score for a better tomorrow.
Everyone knows that if you pay your bills late or don’t pay them at all, it will cause your credit score to plummet. But there are some other things that can hurt your credit score that you may not know about.
If you have paid off a credit card debt and don’t plan on using that credit card any more, it seems like it would make sense to close the account. But that’s actually a bad idea.
Closing credit cards can harm your credit score in two ways. For one, it shortens your credit history, because closing the card wipes out all the record of your usage.
Closing an account may also hurt your score by increasing your debt-to-available-credit ratio, which measures how much debt you have relative to how much open credit you have.
If you feel the need to close a card, close the one you have had for the shortest period of time.
While you don’t want to close cards, you don’t want to sign up for too many either, especially in a short period of time.
Resist the temptation to sign up for every store credit card offer that comes along. If you want a card with a better interest rate or better rewards, compare credit cards online and pick the best one.
Credit card mistakes aren’t the only way you can hurt your credit score. Loans aren’t the only debt that creditors report to credit bureaus.
For example, while your utility company won’t report your positive payment history to the credit bureaus, if you fall behind on your payments, it may report your delinquent account.
Another debt that can get you in trouble in terms of credit is private debt such as unpaid parking tickets and library fines. Instead of just tolerating these debts or writing them off, some municipalities are now sending them to collection agencies and reporting them to credit bureaus.
Failing to pay your taxes is one more way you can kill your credit score. A tax lien from the IRS can stay on your credit report up to 15 years, about twice as long as a bankruptcy. Even if you pay off the lien, it won’t reverse the damage that’s already been done.
While you can compare credit cards online and apply for the one you want, getting a mortgage or car loan is a bit more involved.
Credit bureaus realize this and cut you some slack if you apply to several lenders to hedge your bets and try to find the best deal. However, make sure you do it in a limited period of time, usually a few weeks. Spread out your search for a mortgage for several months and your credit score could suffer.