You take great pains to make sure you stay on top of your bills and avoid making late payments, so why has your credit score recently fallen? There are a number of factors other than your payment history that influence your three-digit number, and understanding these variables can give you ideas how to tweak your credit management practices to get the most out of your credit score.
Below are three of the most common mistakes people make that harm their credit score. Read on so you can avoid them next time.
Reason #1: You Are Carrying Large Balances
The balance on your credit card versus the credit limit is known as your utilization ratio. This little ratio has a big impact on your credit score, so pay close attention to how heavily you spend on your credit cards – even if you pay it off each month.
The highest ratio you will want to reach to still be safe is about 30 percent, but if you want a boost in your score try going even lower – around 10 percent.
Reason #2: You Submitted New Credit Applications
Each time you apply for a line of credit, whether it’s a credit card or auto loan, you give lenders permission to look at your credit history. When this occurs, a hard inquiry is recorded on your credit report. Credit inquiries contribute roughly 10 percent of the points in your three-digit number.
Although the impact to your score is small, avoid submitting too many applications for credit in a short period of time. In some cases, such as when comparing mortgage or auto loans, multiple applications within a 14- to 30-day period are considered only one inquiry, but this is not the case for credit cards.
Reason #3: You Closed A Credit Card Account
The length of your credit history is another significant factor, where long-standing accounts are awarded more points. This means that if you close a credit card account you have had open for years, your credit score may drop.
Instead, try paying off the balance and simply discontinuing use of the card. Doing so will give you the dual benefit of keeping that credit available to you and keeping your history lengthy.
Keeping these rules in mind can help you navigate the tricks of the trade, so your credit score is there when you need it.