Common Credit Score Mistakes to Avoid

Sometimes people accidentally damage their credit scores without realizing it through simple credit score mistakes.

Managing your credit is not just a matter of paying your bills on time — it also involves making the right decisions about how to utilize your overall credit options to help keep your credit profile in good shape.

Discover It Card

Earn big‑time cash back that never expires.

In the same way that you need to keep your resume up-to-date even while you have a job, managing your credit even when you don’t need a loan will help make you more creditworthy when the time comes to apply for new credit. Here are a few common credit score mistakes you can avoid to keep your credit healthy:

Closing Old Credit Card Accounts

Sometimes people think that they should close credit cards that they haven’t used in a long time, there are considerations before making this decision. That’s because closing old accounts could reduce your credit utilization ratio and change your length of credit history.

For example, if you have three credit cards and they each have a credit limit of $10,000 and you close one of them, you are reducing your total available credit from $30,000 to $20,000. If you carry a balance of $2,000 on each of the two remaining cards, you have just increased your credit utilization ratio from 13.3% to 20%.

Increasing your credit utilization ratio can impact your credit score, because it makes it appear that you are using up a higher percentage of overall credit, which could mean you are a riskier consumer. Consider the potential consequences when deciding whether to close older credit card accounts.

Not Using Your Credit Regularly

Another of the most common credit score mistakes is having credit cards, but not using them.

One of the most important aspects of using credit is building credit history: You need to make purchases and pay off your balances on time each month to prove to credit issuers that you are creditworthy and that you can use credit responsibly.

If you don’t have any credit history, you might get turned down for a loan when you apply for one to buy a car or house or other major purchase. Even if you just make a few small purchases each month with your credit card and pay them off in full every month, it helps to build your credit history.

If you’re afraid of racking up credit card debt, keep in mind that building your credit history doesn’t mean that you have to carry a balance or incur interest charges on those purchases; you can always pay off your balance in full each month.

Maxing out Your Credit Cards

On the other hand, it’s also a bad idea to go too far in the opposite direction by relying on your credit cards too much — to the point that you max out your cards and have no more available credit.

If you are borrowing up to your maximum credit limit, it could hurt your credit score by impacting your credit utilization ratio, especially if you struggle to make payments on time because late payments will impact your score.

Co-signing on a Loan

If you have a friend or family member who needs to get a loan but who doesn’t have good enough credit to get approved on their own, you might be tempted to help them out by serving as a co-signer on their credit application.

Although it sounds like a generous thing to do, be cautious: Being a co-signer on someone else’s loan or credit application is a big risk for your credit score. If the person you co-sign for fails to repay their debt, you’re held responsible just the same as if you had taken out the loan under your own name.

Discover it® Secured Credit Card

Sponsored

Build or Rebuild Your Credit with Discover it® Secured Card.

To learn more about how to maintain and improve your credit score, familiarize yourself with these common credit score myths.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

Up Next  

Does Everyone Start With a Credit Score of Zero?

Explore More Topics:

You Might Also Like...