Many people think by closing their credit card it will help their credit score, however, it
actually will lower your credit utilization ratio. Your credit utilization ratio determines
how much credit you are currently using and it accounts for about 30 percent of your
FICO score. So think twice before closing your credit card.
When applying for a new line of credit (ie: a credit card or an auto loan), the
company will run a hard inquiry on your credit report. Having too many hard
inquiries on your credit report at one time will lead to a decline in your score. This
can also severely affect it if you apply for multiple lines of credit in a short period
of time. So in a nutshell, it would be better to apply for credit only when you need
it.
You should only apply for cards that you know you can qualify for. If you get
declined for five cards before getting approved – you will have six hard inquiries on
your credit report and it will lower your score.
If you want to make a large purchase but don't want to pay for it all at once,
consider putting it on a new credit card instead of getting store financing. Many
credit cards now offer a 0% intro APR for up to 18 months, which means you won't
have to pay interest on the purchase for a year and a half. It will also raise your
credit utilization ratio, since you are taking on more credit.
Financing a major purchase, like a couch or a flat-screen TV may seem like a good
idea, but you should think twice about it. Some store financing can be considered a
"last-resort loan," which can make you look like a credit risk. Any financing will also
result in a hard inquiry on your credit report and will affect your credit score.
Paying for a car rental service with a debit card, at first glance might seem
okay since you're not paying with credit. However, some agencies will check your
credit report if you decide to pay by debit card. The rental agency might see it as
a red flag that you aren't using a credit card, so they're going to check and see if
you can be trusted. It'll count as a hard inquiry and could cost a few points on your
score.
Not paying for a parking ticket: You might think you pulled a fast one on the
local municipality by not paying a parking ticket but some cities, including New York
and Chicago, send your unpaid tickets to collections agencies. Your credit score can
take a severe beating if you have an account in collections.
This goes the same for utility bills, back rent and other expenses that you forgot
to pay. Make sure that all of your accounts are paid up so that no one can send your
accounts to a collection agency.
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