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Common Credit Score Mistakes

There are a few things that people do without realizing it that have a bad effect on their credit score.  Follow these tips to avoid the common traps that can sink your credit risk rating:

Tip #11: Beware of debts and credit you don’t use.

It is easy today to apply for a store credit card that you forget all about in three years - but that account will remain on your credit report and affect your credit score as long as it is open.  Having credit lines and credit cards you don’t need makes you seem like a worse credit risk because you run the risk of “overextending” your credit. 

Also, having lots of accounts you don’t use increases the odds that you will forget about an old account and stop making payments on it - resulting in a lowered credit score.  Keep only your used accounts and make sure that all other accounts are closed.  Having fewer accounts will make it easier for you to keep track of your debts and will increase the chances of you having a good credit score.

However, realize that when you close an account, the record of the closed account remains on your credit report and can affect your credit score for a while.  In fact, closing unused credit accounts may actually cause your credit score to drop in the short term, as you will have higher credit balances spread out over a smaller overall credit account base. 

For example, if your unused accounts amounted to $2000 and you owe $1000 on accounts that you have now (let’s say on two credit cards that total $2000) you have gone from using one fourth of your credit ($1000 owed on a possible $4000 you could have borrowed) to using one half of your credit (you owe $1000 from a possible $2000).  This will actually cause your credit risk rating to drop.  In the long term, though, not having extra temptation to charge and not having credit you don’t need can work for you.

Tip #12: Be careful of inquiries on your credit report.

Every time that someone looks at your credit report, the inquiry is noted.  If you have lots of inquiries on your report, it may appear that you are shopping for several loans at once - or that you have been rejected by lenders.  Both make you appear a poor credit risk and may affect your credit score.  This means that you should be careful about who looks at your credit report. If you are shopping for a loan, shop around within a short period of time, since inquiries made within a few days of each other will generally be lumped together and counted as one inquiry. 

You can also cut down on the number of inquiries on your account by approaching lenders you have already researched and may be interest in doing business with - by researching first and approaching second you will likely have only a few lenders accessing your credit report at the same time, which can help save your credit score.

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