Whenever a business wants to assess your riskiness as a customer, they look to your credit score. It provides them with a quick tool to determine how responsible you are with your finances. It has become knowledge that if you always pay your bills on time and use credit responsibly, your credit score will be stellar. If you fail to do these things, your score will suffer. What you may not know is that even if you follow those hard and fast rules of credit management, some other actions may also lower your score. Here is a sampling of some of those actions.
Department store credit cards
It may seem like a good idea to apply for a department store credit card while shopping to get a discount, but if you do it too often, your credit score will suffer. Having too many credit inquiries within a short time period will lower your credit score. It practically screams that you’re irresponsible with handling credit. Given the traditionally low credit limits and high interest rates of department store cards, applying for them to receive a small discount is not worth the damage to your credit score.
Not using a credit card? Don’t close the account
The credit utilization ratio is the percentage you have used of your total credit limit of all available accounts. For example, if you have three credit cards with a total credit limit of $3,000 and you have a total balance of $2,500 on all of those cards, your credit utilization ratio is 83.33 percent. Having a high ratio will lower your credit score. By closing the accounts of unused credit cards, you decrease the amount of available credit you have. This will, in turn, increase your credit utilization ratio and lower your credit score.
Paying off an account in collection
Although it seems odd, paying off an old debt or a debt that is in collection status may also have an adverse effect to your credit score. Making a payment on a debt in collection status makes the debt eligible to be reported as current. New debt always has a larger effect on your credit score. Settling a debt in collection status may have an even worse effect as the arrangement will be reported on your credit report. Sometimes it’s better to leave well enough alone.
Cell phone service
Cell phone popularity has increased quite a bit over the years. When signing up for a cell phone plan, cell phone providers run credit checks to determine whether they want you as a customer. This inquiry shows up on your credit report and will lower your score, especially if you have several other inquiries present.
Handling credit can be tricky when it comes to your credit score. Given the complicated equations used to determine your credit score, it’s difficult for the average person to determine how some actions will affect it. The best thing to do is to be cautious of how you use credit. Avoiding every action that may have an adverse effect on your credit score is impossible. Focus on what you can control involving your credit and your score will reap the benefits.