There are many things that can hurt your credit score. However, most of these things are seemingly harmless activities that you undertake. Here are three of them:
1) Asking for Too Many Loan Rate Quotes Online
Getting a loan rate quote online is pretty easy. You can get a quote on your car loan, personal loan, student loan, or mortgage loan in seconds. Because of its ease and simplicity, many people like to compare several companies at once in order to make sure that they get the best deal possible.
The problem is credit bureaus count each of the online quotes as an inquiry. This means that if you compare too many companies online by asking for quotes, your credit score will fall due to too many inquiries.
What you should do is to research the companies and narrow down to two or three of them that you are interested to deal with. This will ensure that the number of inquires on your credit report is small and not adversely affect your score.
2) Closing lots of credit accounts within a short period
It seems like a good practice to closed unused accounts or infrequent use accounts. From a financial management standpoint, this is a good practice. However, this can work against use if you are thinking of improving your credit score.
First of all, most credit bureaus give merit to those who have a good long-term credit history. Long-term credit history usually indicates stability in the finance area of your life. So closing a credit account that you open ten years ago will have a more negative impact on your credit score than closing one that was opened one year ago.
If you really want to reduce the number of accounts you have, consider closing the most recent accounts first. Leave your old account open as long as you can.
However, if credit score is not an issue to you, it is good practice to close all those credit accounts that do not need. A short-term dip in your credit score may result but in the long run, it should rebound.
3) Shy away from loans or debts
While it is good to have no debts, it also means your do not have a credit history. This will result in a lower score for you. The thing is that lenders want to see that you can handle credit and the only way they can tell is you demonstrate this ability by having some form of credit in the past. If you currently have no credit accounts at all, consider opening a low balance credit card, which can boost your credit score if you use it regularly and pay the balance in full and on time.
The credit score system is designed more for lenders rather then consumers. Thus the techniques used to improve you credit score can sometimes contradict good financial habits such as closing unused credit accounts. Nevertheless, good financial habits do give you peace of mind and will work well for you in the long run.