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How to Hurt a Credit Score

By Sally Maison
Published: Saturday, September 26th, 2009

Of course, this is a how-to article that no consumer wants to follow. However, everybody has to know what hurts his credit rating if he wants to avoid doing so. Below are myths which consumers think can help their scores, but which actually ruin them.

How to Hurt a Credit ScoreOn top of the list is the closing of old credit card accounts. It is a widely accepted myth among cardholders that it is better to close old, inactive accounts than keep them. There are even consumers who do everything to pay off balances so they can finally close their account.
Having one card closed and being far away from the temptation of credit card debts may sound reasonable, but not for experts. They advise consumers to keep their accounts since a terminated card account will affect their creditworthiness. More than that, a credit card which has an excellent payment history can boost one’s rating. Experts advise consumers to keep their cards and use them in making modest purchases. By paying off small debts on time, they will be building better reputations as borrowers.

Most consumers know that one huge factor in their score is their debt to credit ratio. This makes them think that being debt free will boost their score. Experts say that it is good to keep balances low, but consumers should also show that they are capable of paying what they borrow. Having no debt will make one look lame since creditors will not have anything to base creditworthiness on.

Merging loans is another action that consumers take that hurt their scores. Yes, most people do this to improve their rating, but it does not always work the way they want to. Loan consolidation will make it easier to track debts, but filing up debts without any increase in credit limits will make one look real bad to the creditors. The solution is to think carefully before consolidating. It might be best to spread out balances thinly on different accounts instead of hoarding one huge bulk of debt.

With the economy down, it is tempting to seek help by applying for more loans. This works if it can help a person refinance a loan and does keep him from filing for foreclosure. However, this does not work all the time. Creditors inquire from the bureaus about the creditworthiness of a person before granting loans. Too many inquiries can hurt one’s rating. Moreover, more applications mean greater chances of getting rejected. This will be marked across a person’s name, thus decreasing his chance of getting loans in the future.

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