We’ve recently been discussing credit score issues, so we thought it would be useful to take a look at some counterintuitive ways of protecting your credit score. Sometimes, people act in ways that actually end up hurting rather than helping them. Acting on common misperceptions can be a significant mistake, but correcting them is usually fairly simple. Today we are going to take a look at several of the counterintuitive ways you can protect your score while debunking some of these popular misconceptions.
Counterintuitive Ways of Protecting Your Credit Score: Don’t Close Old Accounts
If you don’t use a credit card, won’t it be better for your credit score if you simply close that account? While this reasoning seems to make sense, the actual effect is detrimental.
Many people have old credit cards they rarely use. Old store cards, cards you first acquired when you didn’t have a good credit score, and other unused credit cards can sit around for years.
Creditors like to see people with long credit account histories, instead of those with only short credit histories. If you have an old credit card, brush it off every once in a while and use it to make a small purchase to keep this credit history information active on your credit report. Generally this will increase your credit score, while closing the old card will generally decrease it.
Counterintuitive Ways of Protecting Your Credit Score: Don’t Use All Your Credit
Speaking of credit cards, it is generally better to use your cards in moderation than it is to charge as much as you can as often as you can. Assuming you are paying your bills on time, it’s better to keep a low credit utilization ratio than it is to keep a high one. This ratio is a measure of how much available credit you have versus how much of a balance you keep on your card every month. Using less than 20% of your available credit every month is better than keeping high balances.
Counterintuitive Ways of Protecting Your Credit Score: Spread Applications Out
If you are thinking about applying for a variety of loans, such as a car payment, mortgage, and credit card, it is better to spread these out over time than it is to apply for them all at once. Lenders don’t like to see a lot of new applications appear on your credit report at the same time, so spreading applications over a longer period of time will generally be better for your score.