Financial Literacy - Credit savvy
7 ways to trash your credit

"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 neither under nor over utilized.

"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," says Cunningham.

Thirty-percent of the FICO score looks at the amount a borrower owes 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 due to large balances relative to their credit limits. It can happen to anyone who carries a balance if a lender decides to chop your credit limit -- in response to market conditions, for instance.

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," says Opperman.

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