SolveYourProblem eLearning Series:
Help Me Improve
My Dreadful Credit Score
(
26 pages )
Credit Score Tips
Tip
#15: Don’t make the mistake of closing lots of credit accounts
just to improve your score.
This
seems like a contradiction, but it really is not. Many people
think that to improve their credit score, they just have
to pay off some debts and close their accounts. This is not
exactly accurate. There are several reasons to think carefully
before closing your accounts.
First,
if you close an account you need (for example, if you close
all your credit card accounts) then you will have to reapply
for credit, and all those inquiries from lenders will cause
your credit score to actually drop.
Secondly,
most credit bureaus give high favorable points to those who
have a good long-term credit history. That means that closing
the credit card account you have had since college may actually
hurt you in the long run. If you have credit accounts that
you don’t use or if you have too many credit lines, then
by all means pay off some and close them. Doing so may help
your credit score - but only if you don’t close long-term
accounts you need. In general, close the most recent accounts
first and only when you are sure you will not need that credit
in the near future. Closing your accounts is a bad idea if:
1)
You will be applying for a loan soon. The closing of your
accounts will make your credit score drop in the short term
and will not allow you to qualify for good loan rates.
2)
Closing your accounts will make your overall debt balance
too high. If you owe $10 000 now and closing some accounts
would leave you with only $1000 of possible credit, you are
close to maxing out your credit - which gives you a bad credit
rating.
In
the short term, closing accounts will lower your credit score,
but in the long run it can be beneficial.
Tip #16: Don’t assume that one thing
will boost your credit score a specific number of points.
Some
debtors are lead to believe that paying off a credit card
bill will boost their credit score by 50 points while closing
an unused credit account will result in 20 more points. Credit
scores are certainly not this clear-cut or simple.
How
much any one action will affect your credit score is impossible
to gauge. It will depend on several factors, including your
current credit score and the credit bureau calculating your
credit score.
In
general, though, the higher your credit score, the more small
factors - such as one unpaid bill - can affect you. However,
when repairing your credit score, you should not be equating
specific credit repair tasks with numbers. The idea is to
do as many things as you can to get your credit score as
close to 800 as you are able. Even if you can improve your
credit score by 100 points or so, you will qualify for better
interest rates.
Tip #17: Don’t think that having no
loans or debts will improve your credit score.
Some
people believe that owing no money, having no credit cards,
and in fact avoiding the whole world of credit will help
improve their credit score. The opposite is true - lenders
want to see that you can handle credit, and the only way
they can tell is if you have credit that you handle responsibly.
Having no credit at all can actually be worse for your credit
score than having a few credit accounts that you pay off
scrupulously. If you currently have no credit accounts at
all, opening a low balance credit card can actually boost
your credit score.
Tip
#18: Never do anything illegal to help boost your credit
score.
It
seems pretty obvious, but plenty of people try to lie about
their credit scores or even falsify their loan applications
because they are ashamed of a bad score. Not only is this
illegal, but it is also completely ineffective. Your credit
score is easy to check and not only will you not fool lenders
by lying but you may actually find yourself facing legal
action as a result of your dishonesty.
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