Yahoo just had a good article today about ways to mess up your credit score that mentions some of the same point I made in a previous post. The article highlights 7 ways to hurt your credit score:

1. Close credit accounts – I mentioned this in a previous post. Closing credit cards can really hurt your credit score.

2. Let credit cards collect dust – Creditor will close your account if they see that it has been inactive for a very long time. This could reflect negatively on your credit report.

3. Run up high balances – This one is obvious. Don’t go maxing out your credit cards. You should only be using a portion of your available credit each month.

4. Apply for new credit repeatedly – You do not want to have too much revolving credit. This means, just have a few credit cards. Nothing excessive.

5. Don’t pay fines or bills – If you miss payments on any fines or bills this will obviously hurt your credit scores. If a company that is billing you needs to send your bill to a collections agency, you need to make sure to pay that bill right away or risk your credit score dropping.

6. Ignore mistakes on your credit report – If there is a mistake on your credit report, correct it immediately! You also want to check your credit report and credit score a couple times a year. This can really hurt you in the long run if you are trying to get a loan in the future and they see the error on your reports. You can claim it was a mistake, but if you don’t get it corrected, it won’t make a difference.

7. Make late payments or miss payments entirely – This one is obvious too. Late payments will kill your credit score. If you were a lender, you would want the person to whom you are lending money to have a good history of making payments.

There are a number of ways to check your credit score and credit report. I would check your credit report a couple of times a year, although I actually only do it once since I get lazy. Checking your credit report is free once a year with each of the three credit reporting agencies – TransUnion, Equifax, and Experian. These credit reports will tell your payment history, but will not tell you your credit score. These credit reports are good to review and make sure that all the information is correct this they play a big factor on your credit score. Many lending institutions will look at this credit report when you apply to borrow money since this shows your entire credit payment history. Just check it once in a while to make sure nothing is wrong.

For the credit score, I use creditkarma.com, which is free, and I also check it about twice to three times a year. You want to check your credit score to track it and to make sure you know where it is as often times, the interest rate that you pay for loans can be impacted by your credit score. Creditkarma doesn’t give you the exact FICO score, but it is pretty close and works well.

I received an email from John, a reader, about the effects of cancelling one of his old credit cards on his credit score. So, I decided to post a number of “fast facts” about credit scores. In this post, I will address John’s question about credit cards and his credit score.
The quick answer to this question is that you probably do not want to cancel the old credit card that you do not use. There are two main reasons for this. One of the ways that your credit score is calculated is through your credit history. The credit cards you have all show your payment history and the longer it is, the better it is for your score. So, cancelling an old credit card could hurt your score because it will shorten your credit history.
Another portion of your credit score is calculated through a ratio that compares the amount of credit you use and the amount of credit available to you. It is usually better for your credit score if you have a smaller ratio of used credit to available credit. This means that if you cancel that credit card for which you have a certain credit limit, it lowers the amount of credit that is available to you which in turn raises the ratio.
At the same time, you don’t want too much available credit so don’t go signing up for a bunch of credit cards. Feel free to comment with any specific questions you have about credit scores and I’ll be sure to cover that topic in a future post about credit scores.