Bad Credit Resource Center

Here are 2 more tips on these ongoing posts about actions that negative affect your credit score

Most people speak of having a “credit score” when in fact most people have at least three or more scores - and these credit scores can vary widely.  There are three major credit bureaus in the U.S. that develop credit reports and calculate credit scores.  There are also a number of smaller credit bureau companies. 

In addition, some larger lenders calculate their own credit risk scores based on information in your credit report. So when repairing your credit score, you should not focus on just one number, you need to contact the three major credit bureaus and work on repairing the three credit scores separately.

Tip #5: Don’t assume that one thing will boost your credit score a specific number of points.

Some debtors are lead to believe that paying off a credit card bill will boost their credit score by 50 points while closing an unused credit account will result in 20 more points. Credit scores are certainly not this clear-cut or simple. 

How much any one action will affect your credit score is impossible to gauge.  It will depend on several factors, including your current credit score and the credit bureau calculating your credit score. 

Generally, the higher your credit score, the more small factors - such as one unpaid bill - can affect you.  However, when repairing your credit score, you should not be equating specific credit repair tasks with numbers.  The idea is to do as many things as you can to get your credit score as close to 800 as you can.

Tip #6: Don’t make the mistake of closing credit accounts just to improve your score.

This may sound like a contradiction, but it’s really not.  Many people think that to improve their credit score, they just have to pay off some debts and close their accounts.  This is not exactly accurate.  There are several reasons to think carefully before closing your accounts. 

First, if you close an account you need (for example, if you close ALL your credit card accounts) then you will probably have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop. 

Secondly, most credit bureaus give high favorable points to those who have a good long-term credit history.  That means that closing the credit card account you have had since college may actually hurt you in the long run.  If you have credit accounts that you don’t use or if you have too many credit lines, then you should pay off some and close them.  Doing so may help your credit score - but only if you don’t close long-term accounts you need.  Generally, close the most recent accounts first and only when you are sure you will not need that credit in the near future.

Closing your accounts is a bad idea if:

1) You will be applying for a loan soon.  The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates.

2) Closing your accounts will make your overall debt balance too high.  If you owe $10 000 now and closing some accounts would leave you with only $1000 of possible credit, you are close to maxing out your credit - which gives you a bad credit rating.

In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial. Stay tune for more tips in the next post.

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