Maintaining a Stable Credit Score

These days maintaining a stable credit score is more important than ever. So you try to do everything right. You pay off credit card debt, avoid new loans, close unused credit card accounts, and make sure that you pay all your bills on time. Then you check your credit score, only to find that it fluctuates by as much as 50 points -- which could mean the difference between a low mortgage rate and a high one. What are you doing wrong?

You may not be doing anything wrong, says Tena Friery, the research director at Privacy Rights Clearinghouse, a nonprofit consumer education organization. "The score really captures the data in your report at any given time," she says. "Accounts are opened, accounts are closed; that all changes daily, weekly, monthly."

Or maybe even more frequently."If you check your credit score right now and then check it an hour later, it could change," says Ken Lin, CEO of Credit Karma, a website that provides free access to credit scores and credit advice.

Does that mean that you have no control over fluctuations in your credit score? It may seem that way, but in reality there are plenty of things you can do to keep your credit score stable. Here are tips from Lin and Friery for keeping fluctuations to a minimum and maintaining the highest credit score possible:
1. Pay your bills on time

The three main credit bureaus (Experian, TransUnion and Equifax) each use a slightly different algorithm to calculate scores. But they all rely on one thing: your payment history. "How you have paid your bills in the past is predictive of how you will pay bills in the future," says Friery. So you want to be sure all your accounts are current. "One delinquency can drop a score by 50 points," Lin says.

2. Check your credit report

Once a year, you can request a free copy of your credit history from each of the three bureaus. And Credit Karma allows you to check your credit score as often as once a day. So if you haven't checked it in the past year, that's the first thing you should do.

"Clear up anything that is inaccurate," said Friery. "You can dispute anything that you believe is wrong. It takes time, but it can pay off. Negative information should be deleted after seven years. Bankruptcies come off after 10 years." (Also see "Disputing Credit Report Errors.")

3. Don't max out on available credit

"You should not have a huge debt load," Lin advises. "You don't want credit card debt to exceed more than 30 percent of the total limit." (Also see: "How to Get a Home Loan With Bad Credit.")

4. Don't be tempted by department store credit card offers

"The more recent the credit application, the more it will affect your score," says Friery. You might be tempted to open a credit account at Home Depot in anticipation of fixing up a home, but it's best to wait until you're ready to start hammering before opening the account.

Another point about multiple credit cards: the more you have, the harder it is to keep track of payments, and the more likely you are to miss one, which will negatively affect your score.

5. Don't close a credit card account

OK, so we just told you that opening a new account could decrease your credit score. So closing an account will raise your score, right? Wrong. It's counterintuitive, Lin acknowledges, but "If you have had a credit account for 12 years, it speaks to your credit worthiness." Even if you have zero balance, he advises, keep it open. It also boosts your credit availability, another factor in the credit score algorithm.

"Diligence and monitoring are important to maintain a stable credit score," says Lin. "Monitor it once a month. That way, you can get a handle on what is going with it. If you get a little bit experience with it, if you stay on top of it, you will see, 'Wow, every time I apply for new card my score goes down. When I pay my bills, it goes up.' When consumers start checking their scores, they will see the correlation of financial activity and credit score, and they will be more likely to manage it better."

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