Many people understand the importance of maintaining their credit score, but may not fully understand how it is calculated. If your knowledge of credit scores is limited to the need to make on-time payments and avoid going over credit limits, it’s time to learn about five common actions that can hurt your credit score.
1. Applying for too many lines of credit
Having a few credit cards and maintaining low balances is a good idea. However, applying for several lines of credit over a short period will hurt you, even if your applications are approved. Multiple credit applications make you look desperate. Credit applications also create “hard inquiries” on your credit report. Each hard inquiry shaves a few points off your credit score.
2. Consolidating your debt
Canceling your credit cards and consolidating your balances may seem like a good idea. However, consolidation often leads to carrying a high balance on a single card, damaging your score. Consolidation loans can also hurt you. Not only do these loans imply that you are struggling to manage your current credit card loans, but they also can lead to trouble if you don’t cancel your cards. If you start using the cards again, you can end up in even greater debt.
3. Getting a new cell phone
Did you know that when you get a new cell phone that many cell phone companies do a credit check? This is a hard inquiry that can hurt your score. Ask the phone company if it will accept a cash deposit in lieu of checking your credit.
4. Closing old accounts
Perhaps that first credit card you got in college is still open, though you don’t use it. Don’t close the account. These older, even unused cards, establish your long-time use of credit. In addition, having credit that you don’t use shows that you are a responsible consumer. If you cancel these accounts, you limit your available credit and shorten your credit history. Both actions hurt your score.
5. Shopping around for a loan
If you are buying a home or car, you may be tempted to shop for a loan. Unfortunately, applying for multiple loans results in more of those credit-damaging hard inquiries.
Having a credit card and using it wisely is important, but ensuring you maintain your credit score is even more important. Limiting your credit applications, keeping your balances low and not closing accounts will keep your score healthy.