Your credit score is calculated by factors that are often counterintuitive.

One of the largest problems people face when trying to improve their credit is that they are ill informed.  You heard your friend so and so say that this could help your credit, or your other friend said that could help your credit.  Well don’t fret any longer, because a recent article on Yahoo Finance presented ” 7 Ways to Be Credit-Stupid “.  These tips will help you avoid the mistakes that you made in the past, and will eventually lead to a much improved credit report.

A big problem people have with understanding what will or won’t hurt their credit is that the rules to help your credit are often counterintuitive.  A prime example of this concerns closing credit card accounts.  A bystander would normally think that closing old credit card accounts would help their credit score, because they would have less credit to run up.  What they don’t know is that closing credit accounts is often a bad idea.  One of the biggest factors of how a credit score is calculated is your debt to credit ratio.  This ratio makes up as much as 30% of your score.  What happens is that someone closes their credit card accounts and their available credit goes down.   This hurts their debt to credit ratio.

Additionally, if you end up closing your oldest credit card accounts, this hurts your credit score as well, because your length of credit history is also taken into consideration.  This is similar to another tip that the article mentions, don’t apply for new credit often.  Your length of credit history is actually calculated as an average, so if you have several credit accounts that aren’t very old they will drag down your average length of credit history.

Next, if you let credit cards sit idle you could be making a mistake.  You would think that not using your credit cards would show that you are managing your credit effectively, but what happens is that your credit issuers end up canceling your account, because you are not using it.  As mentioned above, this could hurt your debt to credit ratio.

The trick is for people to not run up their credit cards too much, but to use them consistently.  Even if you run up large balances every month and pay them off, this could be reflected poorly on your credit report.  The reason is that credit agencies only report your balance to the credit reporting agencies once a month.  If they happen to report when you have a large balance on your card, it hurts your credit regardless of if you are about to pay the bill off.

A final mistake that people make is they don’t pay their non-credit card bills and fines.  What happens is that when you pay your bill you never see it show up on your credit report, so you figure it isn’t reported to the credit agencies.  What you don’t know is that if you choose not to pay your bill, the company that offered you the service will turn your bill over to a collection agency.  An example of this type of account would be your cable or internet service bills.

Anyway, they have some great tips to help you get your credit score up higher.  If you follow them you will be well on your way to avoiding the same old mistakes.

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