Five Ways That May Decrease Your Credit Score

People with low scores usually tend to pay higher interest rates on their loans. However, a lot of people are not aware of what actions are good or bad for their credit scores. The following are five ways that might have a negative impact on your credit score.

First is avoiding credit in general. Although it makes sense not to have debt, lenders actually want to see that you have experience in terms of handling debt, specifically, that you can keep up with the monthly payments, prior to giving you their approval for the loan.

Second is closing your credit card accounts. In reality, lenders want borrowers with experience in long-held accounts. Keep your paid-off credit cards because it shows that you can handle credit even for a long time.

Third is decreasing your credit limit. Spending your credit up to its limit reflects that you are not credit-worth because you are using your total available credit.

Moreover, having your overall debt near the credit limit might decrease your credit score. On the other hand, people with high credit scores only use more or less 10 percent of their total credit limit.

Fourth is opening a new retail card account. While it might a good idea to get a department store card in order to have a 10 percent discount, it can mean that you are dealing with excessive debt. As a result, lenders might reject your loan application.

Fifth is keeping a small credit card balance every month. One of the reasons for more debt, together with interest and fees, is paying the least amount on a credit card, or not paying in full. It’s better to pay your debt on time and in full.

It is important to be aware of these misconceptions so that you will not be confused about your credit report. According to a survey conducted by ING Direct, only five out of 1,042 parents know that some actions, such as closing credit card accounts and having zero credit, as harmful to credit scores.

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