As we have been discussing credit reports and credit scores in recent weeks, we thought we should take some time to discuss what you shouldn’t do if you want a good credit score. While taking responsible actions as a borrower will raise your sore, there are some seemingly responsible actions you can take that may see your score lower. Today we are going to take a look at several seemingly responsible actions that might actually result in your score decreasing.
What You Shouldn’t do if You Want a Good Credit Score: Close Unused Credit Accounts
Part of your credit score is determined by the average length of each loan you have. If, for example, you have one credit card from 10 years ago and one from 6 years ago, your average account age will be 8 years. In general, the longer the average age, the better your score. So, brushing off that old credit card and using it for a small purchase every so often will be better for your score than closing the account.
What You Shouldn’t do if You Want a Good Credit Score: Max out your credit cards.
A big part of your credit score is how much of your available credit you use at any time, known as a credit utilization ratio. In general, having a credit utilization ratio below 20 percent is good, while anything over about 30 percent usually isn’t.
If, for example, you have 2 credit cards and a total of $10,000 in available credit, you shouldn’t carry a balance more than $2,000, and definitely not more than $3,000. If you max out your cards and have a high credit utilization ratio, your credit score will suffer.
What You Shouldn’t do if You Want a Good Credit Score: Get a lot of loans in a short amount of time.
Let’s say you are a recent college graduate and have just begun a job in what you hope will be a long career. With a new income and the ability to make monthly payments, you might be tempted to start applying for several loans in a short time. You might want a car loan, several credit cards, or even a mortgage. After all, if you can manage your loans responsibly and make timely payments, you’ll prove you’re a responsible borrower and your score will rise, right?
Not necessarily. In general, it’s best to spread out your loan applications over time. If you want a good credit score, you don’t want a lot of credit inquiries on your credit report at the same time. Neither do you want a lot of new loans with brief histories. It’s better to spread your loans out over time and build your credit slowly, rather than try to do it all at once.