8 Practical Tips for Avoiding Declines in Your Credit Score

Besides these 10 negative credit impacting actions we have just gone through in some detail, there are some additional tips for avoiding hurting your personal credit score. These other eight practical ideas for maintaining your credit score include the following:

Never Ignore Possible Inaccuracies

Mistakes on credit reports happen all the time. Even if they are limited to only one percent of credit reports, this still amounts to over a million reports with potentially damaging misinformation. You can check your credit report for free (with no negative consequences) through a service like Credit Karma or Discover It or by contacting the three major reporting credit bureaus online (they will send you all three of your reports once per year at no charge) or by phone. 

If you spot a mistake, no matter how small, make sure to file a dispute at your earliest convenience with the relevant credit reporting agency. It can take them up to a month to investigate and correct the error.

Paying Your Insurance Monthly

How you pay your car insurance premium does not directly impact your credit score. The way it can affect you is if you only pay it by the month (instead of quarterly or semi-annually). In monthly payment instances, the insurance provider will conduct a hard inquiry on your credit report since they are de facto extending you credit. 

Each of these hard hits on your credit report has the potential to lower your score by several points, in particular if there are several of them at the same time. Avoid this by paying your car insurance premiums for a longer time period than only a month.

Transferring all of Your Credit Card Balances to a Single Card

This action may allow you to consolidate your debt and pay less interest, but it can cost you points in the credit utilization category (making up 30 percent of your total credit score). The reason is that the credit scoring algorithms check your balance on each card to determine per card credit utilization. 

Anything over 30 percent utilization looks bad and costs you points, even if your average credit utilization is less than 30 percent. 

Avoid Too Many Credit Requests

The component for new credit is 10 percent of your score. With each additional request for credit, this number of hard inquiries goes up. Several of them at once will cost you points in this category. Instead, make it a point to spread out your requests for new credit by several months if at all possible.

Withdrawing Cash on Credit Cards

The simple act of withdrawing a cash advance from your credit cards will not directly affect your personal credit score. The high costs surrounding these cash withdrawals will increase your monthly payment minimums. 

If you become unable to keep up with the minimum payments in a timely manner, then this will badly impact your payment history component (counting for 35 percent of your score). 

Your cash advance will also raise your credit utilization ratio. 

If this drives the key number up above 30 percent, then you will lose points from the critical 30 percent component of credit utilization. Cash advances from credit cards may not appear as individual items on your report, but going over the key threshold in utilization will undoubtedly hurt your score every time.

Co-signing on Credit Applications

It does not directly hurt your credit score to be a co-signer on someone else’s loan. The way it can badly hurt you is if they do not meet the terms of their agreement by making on time payments. Even though this is their loan, your score will suffer in the payment history critical component (35 percent of score) if your co-signer falls behind or becomes delinquent on the loan. 

The debt amount will also drive up your debt to income ratio, which lenders do consider in the approval process. 

Beware of the Trap of Closing Too Many Credit Lines at a Time

It is tempting to close out credit cards that you simply do not use. The problem is that your credit score includes a 15 percent component for average age of accounts. With each account closed, you lower your credit’s average age. This can cost you more points the more accounts you close at the same time. You should carefully consider closing existing accounts and spread them out if you do decide to go through with this.

Closing cards with 0 percent credit utilization can also harm your average credit utilization component of your score by driving it higher (a category that makes up 30 percent of your total score).

Closing Cards With Remaining Balances

Cancelling a card with a remaining balance will cause you to increase that card’s credit utilization to over 100 percent (as the available credit will be $0 then). This would harm you in the crucial component of credit scores called credit utilization (making up 30 percent of your score). 

A better way to do this would be to first pay off or transfer the balance (from the card you will close) to another card. Then the card will show a 0 percent utilization when you close it.

Be careful about closing cards that you had for a long time as this will negatively impact your overall credit history length (the component making up 15 percent of your credit score).

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