Credit scores are pretty mysterious. Your score can change overnight and vary by credit bureau. While there’s no secret formula to obtaining a perfect credit score, there are certain actions you can take to give it a boost. On the other hand, there are some moves that actually won’t help your score at all.
1. Paying Your Utility Bills
We all know it’s a good idea to pay your bills when they’re due. And while paying down credit card debt and other loans can potentially do wonders for your credit score, making on-time payments to your electric, cell phone or internet company won’t have an impact on your credit score.
Sure, you can pat yourself on the back for keeping up with your utility bills but on-time payments won’t be your saving grace if your credit score is low. However, not paying those bills can hurt your score if a collection agency contacts one of the credit reporting agencies about your failure to pay up.
2. Paying Your Full Balance on a Maxed-Out Card
Your debt-to-credit ratio (also known as your credit utilization ratio) has a substantial impact on your credit. That’s the amount of credit card debt you owe relative to your credit line or lines. This ratio accounts for 30% of your credit score.
Perhaps you think you can max out your credit card and then pay it all off. Even if you succeed in paying off a maxed-out card, your credit score could still take a hit. Why? Maxing out your card in the first place indicates that you’re not being responsible with your credit.
Trying to improve your credit? A better strategy is to keep your credit utilization ratio as low as possible. The people with the best credit scores tend to have debt-to-credit ratios below 10%.
Another trick is to pay off all your debt prior to the closing date printed on your credit card statement, as opposed to waiting until after you receive your bill. This will lower your debt-to-credit ratio (and help your credit score) as you’re paying off your balance before your information is sent to the credit bureaus.
3. Applying for Multiple New Credit Accounts
If you’re in a rush to build your credit, applying for multiple lines of new credit within a short time span is not the solution to your problem. In reality, it can only make matters worse.
New credit makes up 10% of your credit score. Opening a few new accounts all at once can lower your score. If you have a thin credit file, it’s especially important that you avoid applying for lots of new credit. Doing so can negatively affect your score because it lowers the average age of all of your credit accounts.
4. Closing a Credit Card Account
Parting ways with an inactive account is one of the biggest credit card sins you can commit. There are certain circumstances where closing a card might make sense, like when you’re trying to avoid paying high fees. But if improving your score is your number-one goal, closing accounts is not the way to do it.
Rather than benefiting your score, closing an account can cause your score to drop. Cutting ties with a credit card company might send your credit utilization ratio up, which can then lower your credit score. Also, since FICO incorporates your mix of credit into your score, getting rid of a card could affect your score.
5. Always Paying With Cash or Debit Instead of Credit
If you’ve had a couple of slip-ups with your credit card in the past, vowing to never swipe it again won’t raise your score.
You see, the key to having good credit isn’t avoiding credit cards altogether. It’s using them responsibly. Paying for most of your groceries, clothing and other personal items with the money in your checking account can help you manage your spending. That’s not going to get you closer to an excellent credit score, though.
There are plenty of myths surrounding the subject of credit scores. If yours is below average or it’s keeping you from qualifying for a loan, doing any of the things we’ve discussed won’t raise your score. But keeping your debt-to-credit ratio low, paying off your debt in a timely manner and checking your credit report for errors can help.
Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.