You probably understand that paying bills late or missing payments all together can result in a drop in your credit score.  There are many other situations which are not as widely known which can cause you to have a less than perfect credit score.  Here are a few situations you’ll want to avoid in order to keep your credit score as high as possible:

Doing Too Much Comparison Shopping

When you shop around to get the best interest rate on a  loan, you think you’re doing the best thing possible for your financial situation.  And if you manage to get a super-low interest rate, you are.  But in reality, shopping around for financing can result in having a number of inquiries to your credit report  (which is not to say I don’t advocate shopping around for things like auto insurance).  Each time you fill out a credit card application or visit a bank to apply for a loan – the lender will pull your credit score.  Inquiries to a credit report remain visible on your report for 24 months.  People with high numbers of inquiries are statistically a higher risk for credit than an individual with less inquiries.  The more inquiries on your credit report the lower your credit score.

Canceling Credit Cards

It goes against everything that seems to make sense in the financial world – but closing credit card accounts can actually result in a lower credit score.  When your credit score is calculated, the formula considers how much of your available credit you are actually using.  When you cancel or close a credit card you’re no longer using, you reduce the amount of your available credit which increases the amount of credit you’re using in relation to what you have available.

Keeping Credit Cards And Not Using Them

It seems that if you’re not supposed to go around canceling credit cards the only thing left to do is to leave unused credit cards open, right?  Eventually, after 7 years of no activity, an unused credit card will no longer appear on your credit report.  The problem with leaving inactive cards on your credit report and just allowing them to drop off the report after 7 years is you don’t want it to disappear after 7 years if you have a good payment history with the account!  The record of payments made on time is used when your credit score is calculated, and lenders also look at your history of making payments when determining your credit worthiness.  To keep a credit card active and on your credit report, simply use it for a small purchase once every few months.  Pay the balance off in full when the statement arrives and it will keep your account open and reporting on-time payments.

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