Next, focus on the amount of outstanding debt (30 percent of your score). Together, outstanding debt and payment history account for 65 percent of your score. Pay off your debt rather than moving it around. "A lot of people like to play the balance transfer shell game. Closing out an account and transferring that over means that you're increasing your debt ratio. You're reducing the overall amount of available credit and driving up the balance on the other," says McClary. Ultimately if the credit limit is equal or higher on the new card, it would be a wash over time, but in the short term, this is not smart.
Tip: Discover 6 ways to get control of your cards.
4. Commit for the long haul Fifteen percent of your score is determined by the length of time you've held a credit relationship. Don't close any accounts if you plan to shop for a mortgage or other loan for which you'll need a good score. Opening new cards and closing old accounts negatively impact your credit score in the short run, so avoid making these moves shortly before applying for a large loan. Deciding when to close an account is a tough question, says McClary. "It depends on the overall mix of credit and how many accounts you close. I would stagger it out. Put as much time between those events as possible, because it will affect financing terms," he says.
While you'll want to have a couple of cards to develop a credit history, adding more credit card debt can be a dangerous thing, McClary cautions. "Limit the amount you get to two and keep balances low and pay them off quickly. It's not necessary to have more than a couple of credit cards, and be careful using them because life circumstances can change." Of equal importance is establishing a savings account to fall back upon.
Tip: Listen to this 60-second tip, "Cancel a card, hurt your score."
5. Look before you leap When you apply for a loan or a credit card, lenders check your credit. These inquiries can put a temporary dent in your credit score. Start your loan search by shopping and comparing rates rather than applying for a loan first and deciding later. If you can do all your shopping within the same month, all the better. Mortgage and auto loans are counted as one inquiry if they fall within a 45-day period in the FICO scoring model.
Inquiries have the least impact as far as overall weight. Inquiries, types of credit and the number of loans you have play into the remaining amount of your score.
"I'm always amazed at how people tend to concern themselves with someone making an inquiry when they should be focusing on their payment history," McClary says. "I think if you want to stop solicitations, opt out. But if the motivation for opting out is to have an impact on your credit score, then it's not efficient." Save a few trees, opt out.
Tip: To opt out of unsolicited offers, visit OptOutPrescreen.com or call (888) 567-8688.