The Misunderstood Factors That Can Affect Your Credit Score

There are some financial behaviors that are obviously good for your credit score, such as paying all your bills on time or paying your credit card balances down. And there are other behaviors that are obviously bad, such as maxing out your credit cards or missing a mortgage payment.

On the other hand, there are some credit behaviors that are often misunderstood by consumers. Here are three that might have the opposite impact on your credit score than you may think.

Keeping old credit cards open

If you have an old credit card that you rarely use, it might seem like a smart move to close it and simplify your finances. And from a pure financial responsibility standpoint, it may be, especially if you have other credit cards that cover your financial needs.

However, closing unused credit cards -- especially those that have been open for years -- can have a negative impact on your credit score.

Specifically, 15% of your FICO® Score comes from a category called "length of credit history." Among other time-related factors, this includes the average age of all of your credit accounts and the ages of your individual accounts. By removing one of your oldest credit accounts from the mix, it can hurt this category of your credit score.

That's not all. One of the largest categories of FICO scoring is "amounts owed." And a big part of this is your total credit card balances relative to your available credit. By closing an account, especially one with no balance, you're removing that card's limit from your available credit, which could raise your total credit utilization.

Getting several different types of credit accounts

Did you know there is a category called "credit mix" that makes up 10% of your FICO® Score?

In a nutshell, this category considers the variety on your credit report. In other words, if you have a mortgage, auto loan, and credit card, it could be more favorable than if you simply had three credit cards. The idea is that lenders want to see that you can be responsible with all sorts of credit accounts, not just one specific type.

Asking for higher credit limits

Here's an odd one. It might seem like negative credit behavior to ask your credit card issuers to raise your limits. But it can be a very positive move when it comes to your credit score.

Here's why. I mentioned earlier that a big part of your credit score comes from a category called "amounts owed." This accounts for 30% of your FICO® Score and considers factors like your credit card balances as a percentage of your available credit (known as your credit utilization).

Think of it this way. Let's say that you have three credit cards with a combined limit of $10,000 and total balances of $4,000. You're using 40% of your available credit. But let's say that you get your issuers to increase your limits to $12,000. Now you're only using 30% of your available credit, even though your balances are exactly the same. This is a much better number from a credit utilization standpoint.

Not an exhaustive list

These are just three examples of credit score factors that are often misunderstood. And of course, not all of them apply to everyone -- for example, not everyone has an old, unused credit card. But understanding them and using them to your advantage can help you maximize your credit score, and prevent your score from taking a hit that you weren't expecting.