How You Can Avoid Damaging Your Credit Score

Credit card and bill
David Bigwood/AlamyNeglecting to pay off credit card debt every month or opening too many retail reward cards can drag down your credit score.
By Kimberly Palmer

Given all the myths surrounding credit scores, from the (false) belief that married couples share a single score to the notion that each person only has one, it's no wonder there's also some confusion about just what can help or hurt a score. In fact, some people unintentionally lower their scores, which can lead to higher loan payments or even loan denials, through behaviors they could change. Here are six common mistakes that can accidentally hurt your credit score:

1. Avoiding credit altogether. While living a debt-free life sounds like a good idea, it can actually make it harder to take out a loan when you want to. That's because lenders look for experience with managing debt. They want to see that you can make consistent, on-time payments each month before deciding whether or not to issue you any credit.

2. Comparison shopping. While checking around for the best price is a savvy move in theory, in practice, it can ding your score. When you call different lenders to check on mortgage rates or auto loans and they issue you a quote, they first check your credit history with the credit bureaus. That can look like you're preparing to take on too much debt, which concerns lenders. While the impact isn't huge, it can hurt people with limited credit histories more, because they don't have much experience to balance out the negative impact from the credit checks.

3. Closing accounts. After paying off a credit card debt, you might be tempted to shut down the account for closure. But that move can actually hurt your credit score, because lenders look for experience with long-held accounts. If you've had that credit card for a long time, consider hanging onto it even after you pay it off, because it reflects well on your ability to manage credit over time.

%VIRTUAL-article-sponsoredlinks%4. Lowering your credit limit. While you might want to lower your credit limit, especially if you share a card with someone you think might overspend, such as a spouse or college student, to prevent a card from racking up a huge bill, think again: Lowering your credit limit can hurt your credit score. That's because you appear more creditworthy if you are using only a small portion of your overall available credit.

5. Opening a retail card account to snag a discount. It might sound logical to open up that department store card so you can get the 10 percent discount on your purchase – but doing so could hurt your credit score. When a lender checks your credit history, that inquiry knocks off points. Also, opening new accounts can set off a red flag that you're taking on too much debt, which can send lenders running in the other direction.

6. Maintaining a small credit card balance from month-to-month. Making only a minimum payment on a credit card, or paying anything below the full amount due, leads to more debt along with interest and fees. But some people carry that debt anyway, because they erroneously think it shows they can manage and maintain their accounts. To lenders, though, it can just look like the borrower is getting in over his head, which could eventually trigger higher interest rates on the account. So pay off that monthly balance whenever possible and as soon as possible. You'll also save yourself money on interest in the short term.

Given all these misconceptions, it's no wonder that credit reports can be extremely confusing. Financial experts recommend checking your credit report once a year, free of charge, at, so you can ferret out any mistakes.

If you also want to commit to boosting your credit score, then focus on making regular payments each month. That's the surest path to a stronger credit score, despite promises from score improvement companies that say they can quickly ramp up your score before a loan application. Instead, pay bills on time, and you won't have to dread your next loan submission, whether it's for a home, car or school tuition.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at

6 steps to start a debt payoff plan
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How You Can Avoid Damaging Your Credit Score
The first thing you should do is stop charging. Put your card aside, and switch to cash or debit now.
Get your debts in order. Make a detailed list of all the cards you're carrying debt on. Be sure to include each card's balance, its annual percentage rate and its payment due date.
Now that you know what you owe, it's time to make a budget. This will help you keep your finances in order and plan to pay off a big chunk of debt every month. It's also an opportunity to look for ways to trim expenses so that you can devote more money to cutting your debt.
Before deciding which card to pay off first, you should consider consolidating your debt onto a 0 percent balance transfer card. This can save you big bucks in interest, but it's also tricky. There are a lot of factors to consider, including balance transfer fees.
As an alternative to consolidating, you should make it a goal to pay off the card with the highest APR first. Devote all your extra funds to squelching this balance while still making minimum payments on your other cards. Doing so will save you the most money in interest in the long run.
Once you've paid off your highest APR card, attack the card with the second-highest APR next. Then tackle the others using APR as your guide to prioritizing. Keep it rolling until all your cards are paid off.
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