That’s why last week I told you all the “do’s,” great steps you can take to start improving your score. Click here to access that important information. (link to last week’s column.) This week I want to tackle the “don’ts” –missteps you should avoid at all costs in order to raise your score or keep it high.
Don’t Apply for Multiple Credit Cards at Once: The statisticians who developed credit scoring models figured out that there is a connection between people who apply for a bunch of credit at once and people who fail to pay their bills. So, you don’t want to apply for a bunch of credit cards. Leave time between each application. With mortgages and car loans you have some protection, because every application you make in a short time period of time is considered as just one application.
Don’t Close Accounts: Credit scoring models put a lot of emphasis on the ratio of the amount of debt you carry compared to the amount of credit you’ve been approved for. It’s called your “Credit Utilization Ratio.” Closing accounts reduces the amount of credit available to you, so it can impact your utilization ratio. If you don’t carry any balances it’s safe to close accounts. And if you are not planning to apply for a big loan any time soon, it’s safe to close them. Otherwise, just cut up the cards and let the accounts go dormant rather than formally closing them.
Don’t Co-sign loans: I know you want to help your friends and family members, but if you co-sign a loan, that accounts shows up on YOUR credit report and affects YOUR score. If the person you did the favor for pays late, YOU get demerits. And people who need co-signers in the first place are probably more likely to pay late.
Don’t Ignore Small Balances: The vast majority of scoring models hold late payments and collections against you not matter what their size. So failing to pay a $25 bill is just as bad as failing to pay a $2,500 one.
There are additional Do’s and Don’ts which affect your credit score that are too long and complicated to get into here. They’re book-length issues and they are, indeed, included in my upcoming book, SAVE BIG. Before you accuse me of trying to hawk books, keep in mind that the darn thing doesn’t even come out until January! I feel like information about how to save thousands of dollars –whether by raising your credit score or other savvy moves—is too pressing to hold for my book’s debut. So each week I’m sharing some of my best advice here in my column. I’m also eager to hear YOUR ideas for how to SAVE BIG. If you have managed to save more than a thousand dollars in less than a year, write to me and tell me how, by clicking here.