The Dos And Donts On How To Raise Your Credit Score

March 13, 2010

With all the hype behind raising credit scores these days, it seems more and more people are trying anything they can to help raise their credit score. After all, a higher credit score means lower interest rates and lower payments, which ultimately means huge savings for you in interest payments. But not everything you hear about will help raise your credit score. In fact, it could actually lower it.

Many people think that canceling their credit cards will help raise their credit score. This is a myth. Your credit score can actually drop and drop significantly if you close your credit card account. This is becoming more and more common because people assume it will help their credit score if they’ve less available credit. This is simply not true.

Basically, your credit score, also called your FICO score, is calculated from five key parts:

Payment history

This accounts for 35% of the score and refers to accounts that are paid for as concurred upon, how many past due accounts there have been, if any, and so on.

Currently Owed Accounts

This account for 30% of your score. This is basically what is owed on loans, the proportion of the installments that are still owed and the debt-to-credit ratio.

The Length of the Credit History

This is basically how long you’ve had the accounts, when you last used it, etc. This accounts for about 15% of your credit score.

New Inquiries and New Accounts

This accounts for about 10% of your credit score. These are simply the new accounts that you’ve opened as well as any new inquires from creditors.

Type of Credit

This accounts for about 10%. This is how much is allotted to different types of credit such as a mortgage, credit cards, retail, etc.

So from this list you can see how each part of your credit score is calculated. As you can probably guess, closing your accounts will not raise your credit score.

You’ll not be penalized for having too much available credit no matter what you hear. You actually should keep all your credit card accounts open especially old established accounts - those that have given you credit history, assuming you made payments on time and didn’t have late payments.

So while there are several things that’ll help to raise your credit score, such as making your payments on time and paying up on delinquent balances, closing your accounts isn’t one of them. By closing them it will not raise your credit score and might possibly lower it.

Share: