|7 ways to be a dolt about credit
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That includes the amount of debt you're carrying relative to the amount of credit available.
Plus, the fact that the creditor took action to close the account is also noted on your credit report.
"Some folks feel that because there
is the narrative there, it is less desirable for it
to say closed by creditor rather than by the consumer.
However, I wouldn't have someone be overly concerned
with that because the narrative isn't picked up by
the credit score," Opperman says.
"But it would be better if consumers
were not going to use an account to either close it
themselves, or if they want to maintain that credit
relationship, we suggest that people use their cards
periodically," she says.
Run up high balances
If using too little credit sends up red flags to lenders, using too much credit sends up road flares and fireworks.
Like Goldilocks' preference for porridge and sleeping accommodations, lenders want to see people use credit just right -- not too much, not too little.
Gail Cunningham, spokeswoman for the
National Foundation for Credit Counseling in Silver
Spring, Md., says that the FICO score in particular
favors lots of credit that is not utilized too little
or too much.
"The FICO '08 score does want to see a lot of credit, but it would rather see many low balances on several cards rather than one large balance," she says.
This can be damaging even to cardholders who run up a high balance every month on one card and then pay it off each month. The FICO score does not take those payments into account.
"For instance, charging $8,000 one month,
pay it off. Then charge $10,000 the next, and pay
it off. The model does not recognize that -- it just
reads that you are constantly carrying a large balance,"
Thirty-percent of the FICO score looks
at the amount borrowers owe and then compares it to
the amount of credit they have available. This utilization
ratio gets unpleasantly skewed when you owe more than
30 percent of what is available to you -- particularly
if one card is at or near its limit.
And it's not only irresponsible or desperate
spenders who have damaged scores because of large
balances relative to their credit limits. It can happen
who carries a balance if a lender decides to chop
your credit limit -- in response to market conditions,
To prospective lenders who view your credit report, it appears that you've maxed out your credit cards rather than keeping what was previously a low balance relative to the credit limit.
Apply for new credit repeatedly
New credit doesn't mean just a shiny new credit card stretching out your wallet; it means a lower credit score -- at least in the short run. The reasons are twofold.
First, new credit accounts lower the average age of your credit history.
"Say you've had one credit card for
20 years and then five others that you just got because
you went to five different stores over the holidays
and they offered you rebates to sign up for a card,"
"The credit score is going to take the one account you've had for 20 years -- 240 months -- and the five accounts that you've had for one year. That's five accounts times 12 months and it would then average all of those accounts together so it only looks like you've had credit for four years," she says.