Common Credit Score Mistakes
There are a few things that people do without realizing it
that have a bad effect on their credit score. Follow
these tips to avoid the common traps that can sink your credit
risk rating:
Tip #11: Beware of debts and credit you
don’t use.
It is easy today to apply for a store credit card that you
forget all about in three years - but that account will remain
on your credit report and affect your credit score as long as
it is open. Having credit lines and credit cards you
don’t need makes you seem like a worse credit risk because you
run the risk of “overextending” your credit.
Also, having lots of accounts you don’t use increases the
odds that you will forget about an old account and stop making
payments on it - resulting in a lowered credit score.
Keep only your used accounts and make sure that all other
accounts are closed. Having fewer accounts will make it
easier for you to keep track of your debts and will increase
the chances of you having a good credit score.
However, realize that when you close an account, the record
of the closed account remains on your credit report and can
affect your credit score for a while. In fact, closing
unused credit accounts may actually cause your credit score to
drop in the short term, as you will have higher credit balances
spread out over a smaller overall credit account
base.
For example, if your unused accounts amounted to $2000 and
you owe $1000 on accounts that you have now (let’s say on two
credit cards that total $2000) you have gone from using one
fourth of your credit ($1000 owed on a possible $4000 you could
have borrowed) to using one half of your credit (you owe $1000
from a possible $2000). This will actually cause your
credit risk rating to drop. In the long term, though, not
having extra temptation to charge and not having credit you
don’t need can work for you.
Tip #12: Be careful of inquiries on your
credit report.
Every time that someone looks at your credit report, the
inquiry is noted. If you have lots of inquiries on your
report, it may appear that you are shopping for several loans
at once - or that you have been rejected by lenders. Both
make you appear a poor credit risk and may affect your credit
score. This means that you should be careful about who
looks at your credit report. If you are shopping for a loan,
shop around within a short period of time, since inquiries made
within a few days of each other will generally be lumped
together and counted as one inquiry.
You can also cut down on the number of inquiries on your
account by approaching lenders you have already researched and
may be interest in doing business with - by researching first
and approaching second you will likely have only a few lenders
accessing your credit report at the same time, which can help
save your credit score.
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