Your credit score can help lenders determine how attractive you are as a borrower. Unfortunately, many people don’t understand how credit scores are calculated or how they may be doing things to damage their credit score. Here are some of the most common ways that people damage their credit scores and how you can avoid these actions.
Do Not Go Out Of Your Way To Avoid Credit
Having little or no credit can be a detriment to your credit score. A credit score is a reflection of your ability to handle credit and if you have no credit, your credit score has no information to create the calculation. It is best to have credit that you can handle paying off each month and using that credit to establish your credit history. Avoid late payments, collections, foreclosures, evictions or any other major default to keep your credit score healthy.
Diversify The Types Of Credit Used
To get the best credit score, you should have several different types of credit reflected in your credit history. A person that only has one credit card on their credit history will have a lower credit score than a person that has credit cards, loans, and a mortgage in good standing. The best way to maximize your credit score is to keep several types of credit in your credit portfolio and pay all of your bills on time.
Do Not Close Accounts
Closing your older credit accounts can really damage your credit score. One of the main factors of your credit score is your credit utilization ratio, which measures the limit-to-balance ratio on your credit cards. If you close an unused account, the amount of credit that you have available goes down while the amount of credit used stays the same, skewing the ratio calculation. It is better just to leave the accounts open and unused.