5 things you shouldn’t do to improve your credit score
In the effort to increase their credit scores, some consumers are making mistakes that actually make the problem worse. The following are some of the most common mistakes people make– have you made any of them?
1. Closing old or unused accounts
This is one of the most common mistakes that people make when trying to improve their credit score. Many people mistakenly believe that having accounts that are paid off and no longer used on their credit reports is hurting them, when in fact the opposite is true. The formula for calculating credit scores takes into consideration the amount of unused credit you have compared to how much you owe. Therefore, if you have a credit card that’s paid off, your overall available credit increases, reducing your debt to credit ratio and increasing your score. If you have these types of accounts, keep them open to keep your score intact. To avoid having the creditor close the account for being dormant use the card once in a while and pay off the balance immediately to avoid incurring more debt.
2. Opening a number of new accounts
Just as closing old accounts can hurt you, so can opening a bunch of new accounts to try to increase your available credit. Every time you apply for a new account, it generates an inquiry on your report, which can lower your score by several points. If you open accounts and then use them, it also increases your overall debt and lowers your score. Instead, focus on paying down the accounts that you have currently. A history of consistent payments and a low amount of debt will increase your score in time, so even if you qualify for bad credit loans or high interest credit cards, don’t open the account unless you absolutely have no other option.
3. Cutting out credit altogether
If your credit score and report are dismal, it might be tempting to just cut up the cards and pay cash for everything. While that might be a good short-term strategy to get out of debt, avoiding credit and debit cards altogether can actually harm you in the long-term. Not only is living without a debit card impractical, using credit cards and debit cards responsibly and paying off your debts will actually improve your score over time.
4. Enlisting the help of a credit repair company
There is a difference between credit counseling and credit repair. Credit counselors will work with you to develop strategies for you to pay off your debts yourself, and might negotiate with creditors to lower rates or eliminate fees. A credit repair company, on the other hand, will often promise to “fix” or “clean” your credit report and remove all derogatory information. Unfortunately there aren’t any legitimate credit repair companies in the UK. It takes time, effort and money to improve your score, so instead of hiring someone who makes untrue claims, use that money to reduce your debt.
5. Failing to check your credit report
Consumers are allowed one free credit report each year, as well as one every time they are denied credit. Take advantage of those free reports. Many credit reports contain errors that reduce scores, so staying on top of the information in the document can help you maintain a high score.
In today’s challenging financial environment, it’s important for everyone to keep their credit as intact as possible, as a low score can cost you more money as well as limit your ability to access services, housing and even employment. If your score is low it can improve –b ut only if you avoid these mistakes and instead focus on paying off what you owe.
About the Author: Katherine Rodriguez is a certified credit counselor with a nonprofit organization. After racking up nearly £15,000 in credit card debt, she spent three years paying down her debt and improved her credit score by nearly 200 points. She writes a regular blog about thrifty living and avoiding debt.