Category: CREDIT BLOG

Cash-Only Is Dead Wrong

Posted on July 9, 2011 by - CREDIT BLOG

Many so-called experts say that if you want to build credit, you should adopt a cash-only policy. But here’s the truth …
They are dead wrong.
Avoiding credit won’t make life easier. In fact, it will make life a heck of a lot harder.
If you adopt a cash-only policy, you won’t be able to build credit. In fact, you’ll end up with no credit. And no credit is just as bad as poor credit.
You see, the credit-scoring bureaus want to see that you can responsibly handle many different types of credit before they award you a good credit score. If you don’t accumulate a proven track record, you won’t get a good credit score.
This is why I always say that having no credit score is just as bad as having a poor credit score.
No credit score means …

  • You’ll have a hard time getting great insurance premium rates.
  • You might be unable to find a job.
  • Landlords might not want to rent to you.

And if you ever need a loan (and you probably will!), you will get lousy terms and pay an arm-and-a-leg in interest.
Most likely, the banks are spreading vicious rumors!
Here’s the cold-hard truth …
The banks have intentionally kept consumers in the dark about credit scoring.
The banks fare better if your score is lousy. Simply put, the lower your credit score, the more you will pay in interest.
But what if you learned all the secrets and beat the banks at their own game?

Click here for an article I wrote about the biggest misconceptions of credit scoring. And feel free to pass the article on.
Oh, one last thing. Here’s a pop quiz …
Is the following statement true or false?
“If you shut down some of your credit card accounts, your score will go down.” Click here to read the full answer.

Quick Credit Tip: Become an Authorized User

Posted on July 1, 2011 by - CREDIT BLOG

Learning how to become an authorized user on a credit card is a strong and quick strategy for building your credit, and building it fast. In fact, I have seen people’s scores jump as much as sixty points just by becoming authorized users.
Before discussing the mechanism for becoming a an authorized user on a credit card, let us take a look at the definition of an authorized user. An authorized user is a person who has permission to use another person’s credit card. The credit-scoring bureaus treat an authorized user just like they treat the account holder. If the account is delinquent, the authorized user’s credit score will suffer. If the account is in good standing, the authorized user’s credit score should improve.
For this reason, people with bad credit scores can become an authorized user as a strategy for building their credit scores.
To go about this properly, you will need to do several things. First and foremost, choose a family member (preferably a relative who lives with you) with good credit. The credit-scoring bureaus only include authorized users who are related to the account holder. If you have the same address and same last name as the account holder, the credit-scoring bureaus will be more likely to consider your authorized user status as valid.
Next, make sure the credit card company reports authorized users to the credit bureaus. You can simply call the credit card company and say: “I want to become an authorized user. Will you report my status as an authorized user to the credit bureaus?”
If the creditor does not report authorized users, this strategy will not help repair your credit score, so you should find a different credit card to which you can be added as an authorized user.
This brings me to my next point. In trying to implement what you have learned about how to become an authorized user, you might find that your family members are hesitant to add your name to their accounts, especially if you have a history of bankruptcy, repossession, or other financial disasters. What if you buy a bunch of things using the credit card that you cannot afford? The account holder will then be forced to either pay the bill or harm his own credit score. (And your relationship with the account holder might also be harmed.)
Here are some strategies so that the account holder can protect himself or herself:
1. First, the account holder should tell the credit card company not to issue a card to you. If you do not have a physical credit card, you will have a very hard time making purchases!
2. The account holder should not disclose the account number, credit card expiration date, and card security code from you.
In other words, you will be added in name only, without the ability to use the credit card. You can borrow the account holder’s positive credit history, but you will not be able to tarnish the account’s standing.
Keep in mind that account holders will not be affected by your behavior on any accounts that are separate. So long as the account holder does not allow you to access the authorized user account, his credit score will not suffer.
But yours will surge, so long as the account holder keeps the balance low (preferably below 30 percent of the limit) and continues making on-time payments. In fact, you might be shocked at how quickly your score starts to improve. After all, learning how to become an authorized user is among the most powerful tricks for repairing your credit.

Teaching Children About Credit: Step Two

Posted on June 23, 2011 by - CREDIT BLOG

Last week, I told you Step One of my plan for teaching children about credit.

This week, we’ll talk about the next step.

Allow your children to make pre-approved and controlled purchases using the authorized user account you established for them during Step One.

By giving your children access to the physical credit card and allowing them to make purchases, and then insisting they pay their bill at month’s end, you will go a long way toward teaching children about credit.
And if they make mistakes, push their budgets, and cannot pay their bills, even better! Let me explain.
I’ll start by putting into perspective exactly how this step works. Depending on your family’s finances and level of comfort, you can allow your child to make as large or as small of a purchase as you want, so long as:

1) The purchase does not push your utilization rate over 30 percent; and

2) You can pay the amount in full if your child is unable to do so by month’s end.

The important thing is that you insist your child pay interest on any payments that are not made in full by month’s end.
And if your children want to buy something you suspect they will be unable to pay back within a month’s time, I suggest you allow them to learn a lesson by making a mistake, so long as you are prepared to pay the bill at the end of the month. This financial expense will be worth the valuable lesson you will be teaching children about credit.
Obviously, we want our children to be responsible all of them time. But the reality is that they will make mistakes when learning something new. Wouldn’t you rather that they have already made a few mistakes in the safety of your home? I know I want my children to know what constitutes a high interest rate and how much debt they can reasonably carry without hurting their pocketbook. I want them to plan for paying off whatever debt they might accumulate. And I don’t expect them to simply stumble into this knowledge.
They will need to learn it somewhere, and this starts by allowing them to make mistakes along the way.
Consider two scenarios. In the first scenario, your daughter leaves for college without ever having experienced use of a credit card. On her first day of school, she walks by a booth in which a credit card company is promising approval. Your daughter signs up on the spot and receives a $500 credit limit on her first credit card.
The next week, she receives another credit card in the mail. She didn’t sign up for it, it just arrived. This credit card has a $1,000 credit limit. During the first week, your daughter goes on a shopping spree and maxes out her credit cards. And then she receives the bills, which have a minimum payment of $30 each.
She puts them on her desk and forgets about them. After all, she does not have a system of paying bills, and she is short on cash. The next month, her minimum payment on each card is $135, which includes the original $30 minimum payment, the next month’s minimum payment, and a $40 late payment. As well, because the late payment and interest have pushed her over the limit, she now has a $35 over-the-limit fee on each card.
Within one month, your daughter’s finances suddenly became desperate. She doesn’t have an extra $270 to pay both bills. What is she going to do? Turn to you to bail her out? Ignore the situation until it is turned over to a collection company? Hopefully, she will come to you for help, but regardless, the situation is not ideal.
Now consider the second scenario whereby you took a proactive approach to teaching children about credit. Your daughter is 16 and asks you if she can buy a DVD that costs $49.99. Because you can afford to pay the $49.99 added expense regardless of whether your daughter pays you back, you give her the credit card for this one purchase and tell her that she must pay you in full by month’s end or you will charge interest and a late payment fee. You explain that interest will be 29.99 percent, the typical interest rate assigned to new credit users, and the late payment is $40.
Because you want your daughter to experience the situation as it would play out in the real world, you send her one email notice, letting her know that the bill is due in one month’s time. Then you don’t speak to your daughter about the debt until the first day of the following month. You learn that your daughter forgot to make the payment. She now owes $49.99 for the DVD, plus $1.25 in interest and a $40 late payment fee—a combined total of $91.24.
Because you are committed to teaching children about credit, you sit her down and review the rules of credit card companies, showing her evidence that your terms are reasonable. In fact, you explain that in the real world, she is also over the preapproved limit that you, the creditor, set—$49.99. In the real world, she would also have to pay an over-the-limit fee, which would bring her total to about $126.24.
If she was unable to pay that balance down to at least $49.99, she would be charged an over-the-limit fee for each subsequent month as well. Tack on compounding interest and that $49.99 DVD is going to cost your child $196.24 in a few shorts months.
Instead, you offer your child a deal. She pays the $91.24, plus monthly interest, in three monthly installments, and you waive the over-the-limit fee. Next time, you won’t be so generous. Like any creditor, you will stay on top of her about making the payment. You might even call her cell phone early in the morning on a weekend to make sure she is planning to pay the bill on time.
Your daughter has just learned an important lesson in a safe environment in which you can protect your credit and her credit at the same time. So when she walks by that booth on the college campus, she will be better educated to make good decisions about credit habits.

How Often Should I Allow My Child to Use the Authorized User Accounts?
The answer to this question is as individual as the child. The frequency at which your children ask to use the authorized user accounts is a good indication of how responsible they are. If your children ask a few times a year and always pay the bills in full, you can be fairly certain that they are responsible with credit. If they ask a few times a month and often have trouble paying the bill in full at month’s end, then you probably want to grant access less frequently, making sure that one debt is paid in full before another line of credit is granted.
You will also want to spend time on subsequent steps making sure you are teaching children about credit education.
Related Articles
Teaching Children About Credit: An Introduction

Teaching Children About Credit: Step One

Teaching Children About Credit: Step One

Posted on June 10, 2011 by - CREDIT BLOG

Last week, I told you that I had a “crazy” plan for teaching children about credit. And I explained that teenagers who do not know about managing credit might be in trouble when they leave the nest. On the other hands, if you teach children how to build credit, they will have an advantage.
This week, I’m going in-depth with Step One of my seven-step plan for teaching children about credit.
(Step One, incidentally, is the step that sounds the most crazy!)
Teaching Children About Credit: Step One—Add your children as authorized users to one of your existing credit card accounts.
Let’s get this out of the way: an authorized user is someone who has permission to use your credit card, even though you are responsible for paying the bill. That’s right—an authorized user has no legal obligation to pay a bill.
Nonetheless, I think you should add your children as authorized users to one of your existing credit cards.
But let me be very clear: Unless you have extremely mature children, you should not give your child a physical credit card (at least not yet). If you are just starting the process of teaching children about credit, your kids could very well misuse a credit card, leaving you with a pile of debt, a higher utilization rate, and a lower credit score.
So clearly, you must protect your pocketbook and credit score, which is why I say you should not give your children a physical credit card. In fact, you might not even want your children to now that they have been added as authorized users yet. And be sure your children cannot access your financial records or account numbers. In doing so, you can begin building your child’s credit score without exposing yourself (or your children) to the dangers of an immature credit user.
Okay, with all those precautions out of the way, let me explain why I think this is a critical step of teaching children about credit.
Listing your children as authorized users comes with a host of positive outcomes:
1. You will set the stage for later steps of teaching children about credit. We will talk about this later, but briefly, once you start teaching children about credit, you might want to give your children access to a credit card so that they can make small, pre-approved purchases, like paying for a $20 dinner or a $10 movie.
2. Your children will begin developing a relationship with the credit card company. Eventually (when your children become adults), your child might want to apply for a credit card company of his or her own. If your child has been an authorized user for years, he or she will receive better terms, so long as your account has been in good standing.
3. If you use the right account, your children’s credit scores will rise. In short, you should choose a credit card that:

  • Is and will remain in good standing. This means you have always paid it on time and you will always pay it on time!
  • Has a low utilization rate.

One last thing about teaching children about credit by adding them as authorized users: If you are ever late on a payment, remove your children as authorizes users immediately. This will preserve their credit score. And be sure to join us next week for the next part of this series!

Teaching Children About Credit: An Introduction

Posted on June 6, 2011 by - CREDIT BLOG

I’m about to say something about teaching children about credit cards. And you are probably going to think I’m crazy.
Here goes …
If you have teenage children, you should give them access to your credit accounts.
Now, I know what you are thinking …
What? My teenagers can’t even pull their pants to their waists, much less manage credit responsibly.
And this is exactly why I think you should give kids access to your credit accounts.
Because most minor children never buy homes, apply for lines of credit, or purchase cars with installment loans, most have no credit. And credit bureaus assign really terrible credit scores to people with no credit. In some ways, no credit is just as bad as poor credit.
So if your kids go out into the real world without first establishing credit, they will pay higher car insurance premiums, and they will pay higher interest rates on their first car loan and credit cards. Landlords might not want them as tenants (or you might be required to co-sign), and some employers might not hire your kids.
In other words, your children will be at a disadvantage when they leave the next.
So while I might sound a little crazy for suggesting that you give your teenager access to your credit, weigh the dangers associated with not teaching children about credit cards.
Teaching Children About Credit? If you aren’t, here is Danger Number 1:
As soon as they become adults, your kids will be heavily solicited by credit card companies. They will receive offers for credit cards with astronomically high interest rates and fees. Your kids might walk by booths on their college campus, pick up a credit card application, fill it out, and agree to lousy terms with interest rates that will cost them an arm and a leg.
Teaching Children About Credit? If you aren’t, here is Danger Number 2:
If your kids don’t know about credit cards, and have experience using them, they will likely try to establish credit by using methods that don’t work. So they will end up with lousy scores, and overpay on car loans and credit cards. And, like I said, they might even be turned down for job opportunities.
Teaching Children About Credit? If you aren’t, here is Danger Number 3:
Guess who your kids will turn to when they need financial assistance? Probably you, the parent. And if they are paying high interest rates and unschooled in debt management, they will likely need to borrow money from you.
But as the old adage goes, if you give them the tools to fish and teach them how to fish, you will never need to give them fish again.
Over the next few weeks, I’ll take you through my seven-step plan for teaching children about credit! Stay tuned!

Build Your Credit Score in Five Minutes

Posted on May 18, 2011 by - CREDIT BLOG

Want to know how to build your credit score in just five minutes?
I’ve got an easy tip that you can accomplish in about five minutes…
Ask your credit card company to increase your credit limit. This will lower your utilization rate and, as a result, help you build your credit score.
You see, the credit-scoring bureaus place a lot of emphasis on your balance-to-limit ratio (also known as your utilization rate). The lower your balance as a percentage of your limit, the higher your credit score will be. Credit bureaus prefer that your utilization rate is never higher than 30 percent, meaning that if your credit limit is $1,000, your balance is never more than $300.
So when a credit card company increases your limit, be sure you do not increase your balance.
A lot of people worry that asking for a limit increase will hurt their credit scores. While it is true that your credit card company might need to pull your credit report, the credit inquiry will hurt your score only nominally, and only for a few months. In the long run, the limit increase (coupled with a balance that stays the same or decreases) will help build your credit score.
And in some cases, you might be able to ask for a limit increase without having an inquiry added to your credit score.
If you are worried about adding another inquiry to your credit request, ask the credit card company these three questions before making a request for a limit increase.
1. “Do I qualify for a limit increase without having you run my credit report?”
If you do, simply ask for the full amount you want your limit increased to. If the creditor wants to run your credit report, remember that an inquiry will be added to your credit report, and your score will drop slightly. Ask the next two questions and decide whether you want to take the chance or not. Like I said, if your request is granted, the inquiry won’t matter because the limit increase will help your score in the long run. But if your request is denied, your score will suffer for a few months.
2.     “Can I request the maximum increase, or must I provide you with a specific limit request?” If the creditor requires that you provide a dollar figure to which you want your limit increase, you will need to ask the third question. If not, you can request the maximum increase.
3. “If I request too much, will you deny the request completely, or will you make a counteroffer?”
If asking for too much means that creditor will deny the request completely, you might want to start by requesting a 10 percent or 20 percent increase, especially if your credit report is going to be pulled. If the creditor will make a counteroffer, request the full amount you need to raise your limit enough so that your balance is less than 30 percent.
If your request is denied, your score might drop a little due to the inquiry. But don’t worry too much about it—inquiries stay on your credit report for two years, but they only affect your credit score for twelve months. And inquiries from several months prior won’t impact your score more than a few points. Just work on lowering your balance, which will build your credit score by lowering your utilization rate.

Retail Store Credit Cards: How Many = Too Many?

Posted on March 17, 2011 by - CREDIT BLOG

“Would you like to save 10 percent on your purchase today by applying for a retail store credit card?”
Does that sound familiar? Just about every major clothing and electronics store has promotion aimed at getting people to sign up for a store-specific credit card. But what you don’t know about retail store credit cards could hurt your wallet and your credit score.
In 7 Steps to a 720 Credit Score, I talk about the importance of revolving credit cards in building your credit score. Indeed, a large portion of your credit score is determined by your credit card behavior. One of the best ways to earn a high credit score is to responsibly manage three to five revolving lines of credit, which include your major credit cards (Visa, MasterCard, and the like) as well as retail store credit cards, which are credit cards affiliated with a store like Gap or Chevron.
Before we talk specifically about how retail store credit cards can hurt your credit score, let’s take a look at the method credit-scoring bureaus use to gauge your creditworthiness. The credit-scoring bureaus want to see that you can responsibly handle a number of credit accounts at the same time. Having three to five credit cards allows them to tell whether you can make regular payments and determine whether you are a responsible person.  If you do not have at least three cards, they do not have enough information about you to tell whether you are reliable or not. On the other hand, if you have fifteen credit cards, they know that you could quickly get in over your head by racking up huge credit card bills you are unable to pay.
In the words of Goldilocks, three to five is “just right.”
Of course, you must also show a record of timely payments. Doing so will cause your score to increase whereas failing to make payments on time will cause your score to drop.
You must also keep a card active.  Inactive cards don’t tell the credit-scoring bureaus anything about your ability to manage debt.
Though retail store credit cards will help you boost your score, they cause unnecessary problems:

  1. How will you keep your retail store credit cards active? If you do not need to buy a new washing machine each month, you might have a hard time keeping your Sears card active.
  2. If you are limited to no more than five revolving credit cards, why waste one on a card that will only be accepted by one merchant?  You cannot book a plane ticket using your Old Navy credit card (but you can purchase an Old Navy shirt using a MasterCard).

Retail store credit cards have limited use. If you apply for too many of these cards on top of the Visa, American Express, MasterCard, and Discover cards that you use for traveling, meals, and other expenses, you will soon find yourself with more than five credit cards.
And there is another downside to consider. Many stores promote their store-specific credit cards by offering a 10 or 15 percent discount on same-day purchases if you open an account.
Let’s do the math and see how this adds up. Imagine that you are buying a pair of $60 jeans from the Gap when the cashier tells you that you will get 10 percent off your entire purchase—$6—if you open a Gap credit card. You figure it is a wise move, so you sign up on the spot.
Consider all the downsides:

  • I should take advantage of this offer, you might think, piling a few more items in your shopping cart. Sure, you “saved” 10 percent, but you also just made a rash decision to splurge on things you probably do not need.
  • You have added a credit inquiry to your credit report. Credit inquiries count for 10 percent of your credit score, so your score drops a few points. This might not be a big deal, unless you plan to open another credit card, apply for a home loan, or get a car loan in the next few months. If you do, you might pay higher interest rates, which means that $6 “savings” just cost you a bundle.
  • If you do not pay this and subsequent bills immediately, you will have to pay interest
  • Ever heard of retail therapy? Having credit cards in your wallet strengthens your ability to make emotional buying decisions by creating opportunities for you to charge things you do not need.
  • Especially during the holidays, you will be more likely to make purchases you cannot afford.

My point is that you most certainly do not save a single dollar by opening retail store credit cards.
Still not convinced? Think of it this way: Why would retail stores promote these cards with discounts unless they know they can eventually make money off the retail store credit cards?
A final note: Upon reading this article, you might be inclined to close those retail store credit cards. Resist this temptation as closing credit card accounts could damage your credit score by lowering the average age of your credit cards.  Instead, pay off your retail credit cards so the credit-scoring bureaus know you are being a responsible borrower. Then make a commitment to say good-bye to retail accounts.

How to Build Credit from Scratch

Posted on March 14, 2011 by - CREDIT BLOG

When you’re faced with the situation of having no credit, you might be surprised at how creditors treat you. It can often feel like you’ve been lumped into the same group as people with bad credit. This is because creditors use your past credit history to determine whether you are or will be a responsible borrower. If you have no past history, there’s no pattern to establish your credit worthiness.
This wouldn’t be a significant issue if it weren’t for the fact that credit has become such an integral part of our society. Employers use it when looking for potential hires, auto insurance companies use it to determine rates, not to mention the savings a high credit score can bring you in interest rates alone. The problem is that you need credit in order to have credit. Luckily, there are a few steps you can take to get you on the right track towards building credit and achieving a high credit score.
Get a secured credit card.
Secured credit cards work the same way as regular credit cards, except they require a deposit. The amount you are allowed to borrow usually reflects the exact amount of the deposit you paid or a percentage of that deposit. One common misconception regarding secured cards, however, is that they work like debit cards. This is not true. The creditor only uses your deposit as a guarantee in the event of non-payment. When you make a charge on your card, you need to pay that amount back just like a normal credit card. The payment will not be taken out of your deposit. There are a number of secured credit cards to choose from.
Only charge what you KNOW you can pay off in FULL each month.
Now that you have a card, you need to show that you are a responsible borrower. To do this, you need to make sure that you only charge what you absolutely know you can pay off each month. If you pay off your balance in full each month, you’ll avoid interest rates.
As much as the temptation exists to spend your newfound access to money on something splurge-worthy, the best use for your credit card money is to pay something you’ve already budgeted for each month. Some ideas include gym memberships, subscription services and other routine purchases.
Keep your balance under 30%.
A very little known fact is what we like to call the 30% rule or your utilization rate. When your overall balance goes over 30% of your credit limit, your credit score is negatively affected. That means if your credit limit is $500, your balance should never go over $150. In fact, it’s wise to keep it even lower because many credit card companies actual report lower credit limits than what you actually have, therefore increasing your percentage.
Pay your bills on time, EVERY month.
There’s no need to fall into the trap of creating more debt. To avoid unnecessary interest rates and dips in your credit report, make sure you pay your bills on time every single month. To make sure you’re covered, we recommend setting up automated payments. That way no matter what is going on in your life, your credit score isn’t going to suffer from forgetfulness.
Monitor your credit report.
The point of building your credit is to get a high score, so it makes sense to keep an eye on that statistic. 80% of all credit reports have errors, making it even more crucial to stay on top of things. Don’t fall victim to the free credit report sites either. When you need to get your credit report, make sure it’s giving you your FICO score.
Apply for an unsecured card after about a year.
Once you’ve had a good amount of time with good credit payment history you should be eligible to receive an unsecured credit card. Call your creditor to see if you qualify for a move from an unsecured account to a secured account. Unsecured cards carry many benefits such as higher limits and reward perks. Just keep in mind the same tips when using your credit card.
Building credit can be a slow process that requires a lot of patience. However, like most things, it will be worth the wait whenever you need to make a large purchase or an emergency situation arises.

How to Improve Your Credit Score in 5 Easy Steps

Posted on March 7, 2011 by - CREDIT BLOG, CREDIT SCORING

There are a variety of reasons why you’d want to improve your credit score. You could be getting ready to make a big purchase such as buying a house, or you may want to make sure your options are open in the case of an financial emergency. In fact, in today’s world, your credit score is a key element to financial freedom. In addition to higher interest rates, low credit scores can affect your life in many other areas as well. Companies run credit checks before employment, and low credit scores can affect your auto insurance rates. All of these are great motivators for making improvements, but there isn’t always a great amount of information on exactly how to improve your score.
To help address these concerns, we’ve compiled a list of five ways you can improve your credit score. Some actions may have an immediate positive result, while others will help improve your score over time. It’s important to remember that there are no fast fixes, however, your efforts will be rewarded with lower interest rates and better credit opportunities. To get started, read on…
1. Keep your credit balance below 30% of your credit limit.
Credit bureaus determine whether you are living within your means by evaluating how much debt you obtain in relation to your credit limit. This is referred to as your utilization rate. The bureaus reward consumers with a rate of 30% or lower. That means if you have a $1,000 credit limit, you will never want your credit balance to exceed $300. In fact, to be safe, it’s better to aim lower than the 30% rate because some credit card companies erroneously report lower credit limits, which would result in a higher utilization rate.
2. Make your monthly payments on time every month.
Your credit history is one of the largest factors in determining your credit score, with your recent activity weighing in considerably. In fact, your payment history makes up roughly a third of your credit score. That’s more than any other factor. If you’re at a loss as to where to start building your credit, creating a good payment history would be the best place to focus.
3. Maintain three to five credit cards and one installment loan.
Credit bureaus need to see credit history to determine whether you are a good investment. To provide this, you need to show credit activity. Having three to five credit cards that never go over the 30% utilization rate and a monthly installment loan that is reported to the credit bureaus each month will help to establish your credit habits. Keep in mind that retail credit cards are NOT a good option. This is due to the fact that they typically have very high interest rates and you are forced to shop at their location to keep the card active. If you do not shop there on a frequent basis, you may find yourself making unneeded purchases to maintain current credit history.
4. Check your credit report for inaccuracies and report them.
Did you know that nearly 80% of all credit reports have errors on them? These errors can negatively affect your score and therefore increase your interest rates resulting in higher payments. As a beginning step to building your credit, you should always get your credit report and check for errors. If you find any, you’ll want to report the credit errors to the appropriate credit bureaus.
5. Don’t close older or unused credit accounts.
Fifteen percent of your credit score is derived from the age of your credit cards, with older credit accounts giving you a better score. If you close these accounts, your average age immediate lowers and can result in a lowered credit score. Instead of closing these accounts, use them to pay small recurring fees such as Netflix or gym memberships. Then set up an auto-payment from your bank to pay the credit card a day afterwards. This way, you never have to actually use the card, however, you still reap the benefits of active payment history and an aged credit card.
For more information on how your credit score is determined, download our free eBook, What Your Bank Won’t Tell You About Credit.