We've all heard that we should make sure to pay bills on time and to try not to open too many credit lines at once helps maintain healthy credit. Also checking our credit reports at least annually for errors can assist in identifying and removing discrepancies that impact our credit history. Working towards and maintaining a good credit score can help us get better rates and on loans, credit card offers, and better limits on those loans. It’s important to understand which factors affect our credit score since we have control over many of these factors. Here are five lesser-known factors that can affect credit scores.
1. Eliminating all types of debt
Unless you’re certain you’ll be living a debt-free lifestyle for several years to come and won’t need to apply for credit for any reason, you’ll want to hold on to at least one loan and one credit card account. This is because you need some sort of active credit history to maintain a healthy credit score. Show on-time payments and plenty of available credit from a variety of sources and types. These types of activities are some factors that contribute to a high credit score.
2. Closing out unused credit card accounts
Even though you’ve worked hard to pay off credit card balances and have been good about maintaining a zero balance on the account, it's important that you know you shouldn’t jump on the chance to close accounts entirely. Your credit score may improve when you have open lines of credit that are left unused because your credit utilization ratio will be lower — an important factor that affects the credit score.
Keep old, unused accounts open, because they show valuable history and improve credit utilization ratio.
3. Unpaid parking tickets or library fines
This largely depends on where you live, since some government organizations monitoring fines and fees will report any unpaid balances to a credit bureau while others simply send a series of notices. Take care of those parking tickets and any other local fees on time or risk paying late payment fees and losing points on your credit score.
4. Requesting a credit limit increase
When requesting a credit limit increase on existing credit cards, it’s important to know that the credit card company might perform a hard inquiry (i.e. run a credit check) to get it approved. Each credit card company handles limit increases differently, but many will run a credit check to make sure the customer still qualifies for the increased line of credit. It’s a good idea to check in with your credit card company about how they handle a request for an increase. If you’re a long time and valued customer, ask if they can perform the increase without a hard inquiry on your report.
5. Maxing out credit cards
Even though they may not be going over the limit on a credit card, the fact you are using up all of your available credit on that one card will affect your credit score. The level of debt is calculated based on not only the total debt amount, but also the credit utilization rate on different accounts. Maxing out one or more credit cards could be a red flag that you are in over your heads financially. This, in turn, can lower your credit score. Monitor credit card balances carefully to ensure they aren’t slowly creeping up to the limit. A great trick to increase the score is to pay all balances down to below 30% of the available credit line and never charge any more than that even if you pay the bill off in full at the end of the month.
Keeping your credit score in good shape is easier when you know which factors affect your score and how to fix any errors on your report. Using these factors along with a credit education or repair service (do your research #TeamNoScammers) can help to work towards and maintain a high credit score are some good places to start.