Improving Credit Score

Knowing how to improve your credit score often involves knowing how not to damage it. These common and expensive mistakes are made by irresponsible borrowers of all shapes and sizes, the kind of people who drive credit counselors insane every day.

1. Continue ignoring collection letters. 35% of credit score is based on payment history—the punctuality or tardiness of regular payments. For most people in credit trouble, simply ignoring debts is the main cause. Just talking to debtors can buy time to fill out the forms needed to alter payments.

2. Close bad accounts and assume they will go away. Think of each account as a grade on a report card. Closing an account seals its history, so that changing your credit trends overnight will give you a report card full of Fs and As. Far better to work toward that C, slowly eroding at the bank’s skepticism against the borrower.

3. Keep charging. As obvious as it sounds, many people make the mistake of continuing to borrow heavily after realizing their accounts are in trouble. Such activity is the logical equivalent of continuing to smoke after a diagnosis for pneumonia.

4. Accept failure without giving credit time to heal. Bad credit often stews for years, growing more mold than a used coffee filter after a month in the pot. Cleaning it up afterwards is a time consuming process, and lenders want to see a believable and sustainable new set of financial habits before they’re willing to once again extend their trust.

5. Pay off debts then suspend borrowing altogether. If you want good credit rather than slightly-less-than-terrible credit, then you still have to be making payments on something. After being smacked in the face by a credit epiphany, some borrowers get scared away entirely, figuring that they’ll avoid the problem by never borrowing again. Although it’s true that never borrowing again would render a bad credit score meaningless, never borrowing again is a financially crippling option.

6. Reward a good credit score with impulsive purchases. Some people check their credit score, see it’s not terrible, buy a boat, and then ask for directions to the marina. Good credit does not mean you are wealthy—it means that you have proven yourself to be a responsible borrower. Protect, rather than tarnish, that image.

7. Reward a less bad credit score with impulsive purchases. Similarly, it is even worse to be a bad customer, get a little better, and then treat oneself to a shopping binge.

8. Open retail store cards for short-term savings. Unless you are a very well-organized shopper, retail store cards have a tendency to slip into the red and cost money and creditability in the long run. Even if the store is offering a free $40 for opening an account, a smart shopper knows that some very smart analysts set that number to maximize their profit, not their consumers’.

9. Rush. Building credit takes time, research, notetaking, and study. Don’t make all financial decisions based on helpful top ten lists—learn as much as you can. Nerd out about your credit for awhile. Ask people about it during visits. Annoy your cohabitants with a temporary obsession.

10. Beat yourself up for small failures. Bad habits die hard, and months can hold fistfuls of expensive little emergencies. If you make a bad financial decision, don’t use it as evidence that you are doomed to a lifetime of bad credit.