Four Actions That Can Lower Your Credit Score
Payment history accounts for a large portion of an individual’s credit score. For this reason, how a person pays and manages the bills is worth inspecting. But there are numerous other actions that can affect credit that many people do not realize. The list below describes four common actions that can lower your credit score:
#1: Department Store Credit Cards and Financing
The various types of credit you have on your history constitutes 10% of your overall score. It’s a finicky balance between having too much and too little credit. Negative credit, however, should always be purged from this equation. Experts suggest that a single inquiry can lower your credit score by 5 to 35 points! So if you are constantly applying for common retail credit cards, these deductions will add up. Aim to acquire credit only through recognized financial institutions and avoid in-store financing.
#2: Closing a Credit Card Account
Many people’s first instinct is to close an account after satisfying a troublesome debt. On the flip side, some individuals try to consolidate debt by shifting outstanding balances onto a single card. Experts suggest that a healthy credit score often hovers around a utilization rate of 25% or less. By moving funds around to max-out one account and close another, this utilization rate increases and the individual becomes a “risk” to creditors. Closing an empty account also affects your history, so it’s better to maintain several low-balance credit cards than to eliminate a few altogether.
#3: Credit Limit Increases
While many individuals believe that it is harmless to raise the maximum on a line of credit, this can be a surprisingly harmful mistake. The effects of an increase will vary but are typically short-term. Before submitting a request, speak with your financial branch to determine if increasing your credit limit will result in a “hard” or “soft” inquiry on your credit score.
#4: Business Credit Cards
When applying for a business credit card, many issuers require the individual to make a personal guarantee. Even if you use this card responsibly, your individual credit may suffer if the paperwork is not kept orderly. Stay on top of your billing and filling, however, and a business credit card can improve your total score.
In general, try to always use the credit you have available. Accounts that remain inactive for too long are sometimes closed by default. While we’ve mentioned the effects of canceling a card, the consequences may be doubled for a business account that you’ve personally guaranteed.