Even if you are trying to clean up your credit score, there are several mistakes that you can easily make. Don’t get trapped by bad advice, because you could end up hurting your credit score more than helping it. Even if something seems like a logical decision, you should be sure to research the ramifications before putting your decisions into play.
The number one mistake the people make when trying to improve their credit score is to close their credit card accounts. A large part of your credit score is your debt to credit availability ratio. It is a good idea to pay off your credit cards, but you should leave the revolving account open. This means that you will have more credit available to you, which will offset the amount of debt that you owe. By closing those accounts, you rid yourself of the available credit, which makes the debt you owe appear even larger. In fact, the wisest thing to do is to use the credit card once a month for a small purchase, and then pay it off immediately when the bill arrives. By doing this, you will keep the credit card account open and active, which will prevent the credit card company from closing the account for you.
The second most common mistake that people make is a missed payment. This is, of course, a common sense thing. However, you may believe that missing a payment here and there will not affect your credit score, and you might be right. The score may not drop more than a few points with each missed payment. When you apply for more credit, though, your potential creditors will look at more than just the credit score. Your payment history with other creditors will definitely come into play when they are making the decision to approve you. You could end up with higher interest rates because of your decision.
One mistake that may surprise you is the decision to settle with a lender on a past due account. Of course, this is a quick way to have a debt removed from your life. The settlement will not disappear from your credit report, however. It will, instead, be marked as a deficiency balance on your credit report. You may be able to negotiate terms that keep your lender from reporting the deficiency, but the best idea is to negotiate payments that will make paying the full amount a possibility.