(1) Getting Rid of Credit Cards

What? That’s correct. Closing credit card accounts in an attempt to increase your credit score is often a huge mistake. This seems counterintuitive, I know. Here’s the problem: One of the most important things when someone evaluates your credit to decide whether or not to loan you money is your credit history. Having multiple credit card accounts and making the payments on time for long periods of time makes you a less risky investment to lenders. The information will be wiped away after seven years, and no one will know how “Johnny on the spot” you were with your credit card payment on that account.

The second, more important reason that you should not close your credit card accounts is because of something called your debt to income ratio. Pay close attention, because the credit score formula is being updated, and this ratio will feature more heavily in the new calculation. Your debt to income ratio is simply the amount of credit you COULD be using vs. how much you ARE using. In other words, if you have $10,000 in available credit and you have used $8,000 of it, you have a high debt-to-income ratio. This is bad. This is where keeping your credit card account open comes in. If you have more available credit, then the money you have spent is less proportionately. In other words, if you spent the same $8,000 in the above example, but had $15,000 in available credit, your debt-to-income ratio would be lower, and thus your credit score higher.

(2) Late or Skipped Payments

Unfortunately, your credit history isn’t like your dating history. When someone you’re dating asks you if you’ve ever cheated before… well, the correct answer is always “no” of course. Unfortunately, potential lenders don’t take your word for it when you tell them you’ve never missed a payment. What would you do if the girl you were dating got to call every one of your ex-girlfriend’s to find out if you ever forgot her birthday or cheated on her? That would be terrible. Well, that’s what lenders get to do, except they get it all in one convenient report.

So there’s no hiding from your irresponsible youthful mistakes. How much you are penalized will depend on the frequency of your missed or late payments, how recent they are, and how long the account was delinquent for before you paid it off (if that ever happened).

(3) Frequent Credit Checks

The more people inquire as to the status of your credit, the lower your score is. People make such inquiries when you are looking for more credit sources. Thus, if you search for many lines of credit in a short period of time, this is reflected on your credit report. Apparently, it has been proven by statistics that people who shop for credit more often are riskier lending propositions.

This one used to be a lot more important than it is now. The new credit score formula emphasizes this one a lot less than it used to.

(4) Settling Accounts

This happens when you just can’t pay the bill. Say you owe $5,000 dollars on a loan, and you just stop paying. You know the drill: the constant requests, phone calls, letters, etc. Then all of a sudden you stop hearing from them for a while. You take a deep breath and start walking upright in front of windows again. Then all of a sudden you start getting communication from the credit card company again, or some other company regarding the debt, offering a settlement amount. If you pay this significantly lesser amount, they tell you that your debt will be considered settled.

Well, alright! Of course I’ll pay you much less than I owe and have you go away. Who wouldn’t? Well, unfortunately they still report you to the credit agencies and this reflects very poorly on your credit report for seven years, at the same level as other serious delinquencies. It’s generally not good to settle an account if you can afford it.

(5) Treating every Credit Score Equally

Remember that every score available to you online may not be your true FICO score, i.e. your score as created by Fair Isaac, the standard in the credit industry. Make sure the credit report you purchase contains your authentic FICO score.

(6) Not Knowing When to Dispute

You have right you know. Well, you probably don’t know. So read this and then you will know. The Fair Credit Reporting Act (FCRA) is an act which details your rights as far as your credit score is concerned. Among other things, it says that there are only eight reasons why your credit report may be pulled. Two of them are: If you want it or if it’s part of a transaction where you agree to allow the other party to do so. Check out a full briefing on the act for all the circumstances.

The act also says that you have the right to argue with the credit bureaus regarding any information that you fell is not accurate. The most recent amendment of the act allows everyone in the U.S. free access to their credit report each year, which leads us to…

(7) Not Getting Your Credit Report for Free Each Year

There is no easier or faster way to raise your credit score than to find mistakes in your credit report and correct them. And there is no way to find mistakes other than pulling your credit report and scrutinizing it for discrepancies between what information they have and what you know to be true. Try our Rescore services which can help you correct credit score mistakes and improve your credit score.

(8) Not Building a Credit History

That’s right; you have to play the game to potentially reap the benefits. If you avoid all forms of credit like the plague, you might be better off than some of us as far as getting into credit card debt; but you’ll never develop a credit history. In this country, consumers who supervise the use of their credit responsibly reap the rewards. If you never grow your credit lines, you may come to regret it when it comes time to buy your dream home or sports car. If you don’t have a credit score, your potential lenders will not be able to evaluate your risk factor, and rather than going through the time and expense of compiling that information… you’ll be biking to your homeless shelter.