Credit Score Traps – And How to Avoid Them
What can affect your credit score? You may be surprised. Of course, delinquent payments ding it, but even if you have been a completely reliable consumer and paid every single bill, there are still other traps that can adversely affect your credit score.
Alex and I learned this when we recently decided to look for a condo and got a report back about our credit. Neither of us had delinquent payments, but each of us had significant room to improve when it came to our credit scores.
Reasons included:
- Too many accounts with balances
- Proportion of balances too high on revolving accounts
- Length of time accounts have been established
- Too many accounts recently opened
- Insufficient length of revolving credit history
Surprising, right? Many of the above offenses don’t seem that bad – certainly not harmful enough to drag a credit score through the mud. Because, really, what do the above say about us as trustworthy consumers and our ability to pay off a mortgage? Do they really justify a higher interest rate?
I suppose the banks could think that we rely on credit too much, when, really, we use credit cards vs. debit cards because we gain credit card perks. Or, that we don’t understand how credit works because we haven’t had accounts long enough (even though we’ve each had credit cards for 10+ years). I still question our scores, but let me tell you what I’d recommend based on seeing these facts show up on our credit report:
1) Open one card to serve as your primary credit card that you plan on having for life. Charge very little on this card.
2) Instead, have another card serve as your main card – but don’t use more than 20% of the credit limit. This is the card with best perks. If you need to make a bigger purchase, ask your credit company to extend your credit limit so you don’t need to use as high a percent of your balance.
3) While credit cards offer nice perks for new card holders (e.g. 40,000 miles), acknowledge that your credit score takes a hit for each new card you open. If you have a good score to begin with – you should be fine. However, if you have a few delinquent payments, the extra miles may not be worth it in the long run.
As a reminder, you can check for both delinquent payments as well as who has been checking your credit score by visiting www.annualcreditreport.com
Do you have any credit score tips? Share below!
