Are you damaging your rep without even knowing it? Here are 4 ways you might be throwing shade at your credit score.
DON'T APPLY FOR TOO MUCH CREDIT
You’re in the checkout line and the cashier asks if you want to save 10% by applying for a store credit card. The discount-loving part of you is like, obviously, sign me up. But a store-branded card is still a credit card.
“Each time you apply for credit, an inquiry shows up on your credit report and pulls your score down a little,” says Will VanderToolen, director of counseling services at the AAA Fair Credit Foundation in Salt Lake City.
Be especially careful about opening too many credit cards if you’re about to apply for a big loan, such as a car loan or a mortgage.
“Don’t apply for credit that you don’t need,” says VanderToolen. “But also don’t avoid getting a card at a store you frequent if the benefits will yield positive results over time."
DON'T AVOID CREDIT
Credit can be a Catch-22: You don’t want to go into debt, but someday, you’ll need to get a loan. Even using your debit cards and managing your bank account responsibly does not help you build credit.
"Even if you run your debit card as credit, it will not report to your credit file," says VanderToolen.
If you’re nervous about credit cards, you might try a secured credit card. Car loans, business loans, personal loans and mortgage loans also work, however you need credit to get them (there’s that Catch-22 again), so you’ll likely require a co-signer.
DON'T CANCEL CREDIT ACCOUNTS
Canceling cards — especially accounts you’ve had for a long time — lowers the average length of your account history. Lenders want to see a long history of using credit responsibly. If you close an old account, you’re erasing your credit past.
Also, closing accounts lowers your credit utilization ratio, which measures how much of your available credit you're using.
For example, if you have 4 cards with $10,000 of available credit, and you have $2,500 in balances, you're using 25% of your credit, which VanderToolen says is a safe ratio. But if you cancel 2 of the cards, lowering your available credit to $5,000, you're suddenly using 50 percent of your available credit, which makes you appear less stable.