Trying to Boost Your Credit Score? These Mistakes Could Set You Back

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  • A higher credit score could make it easier and more affordable to borrow when you need to.
  • Some of the things you might think will boost your credit score could instead cause it to drop.

Don't fall victim to these missteps.

If you've recently been denied a loan, or got stuck with an interest rate you weren't happy with, then it may be time to take a closer look at your credit score. And if that number needs work, it pays to do what you can to boost it.

But some of the things you might think will help you raise your credit score could actually end up dragging your score downward. Here are a few pitfalls to avoid in that regard.

1. Carrying a credit card balance because you think it will help

Some people end up carrying a balance on their credit cards because they run into unplanned bills they don't have the money for, or because they lose their jobs and need to put food on the table. But don't specifically carry a credit card balance just so you can pay it off and establish a payment history.

Charging expenses on a credit card and paying your bills in full every month could help your score improve. But intentionally carrying a balance could do the opposite -- hurt your credit score if that balance gets too high.

2. Paying off a large installment loan

If you owe money on an existing loan and have the cash to pay it off, it could pay to do so. But don't assume that will result in an instant credit score boost. Quite the contrary -- though you'd think eliminating a loan would result in a higher credit score, sometimes, that won't happen if the absence of that loan leaves you with a less-favorable credit mix.

Part of what goes into your credit score is the types of different accounts you have open. It's usually considered a good thing to have a mix of credit cards and installment loans. If you pay off an installment loan, like an auto loan, so that all you have left is credit card debt, that could actually bring your score down.

3. Closing an older credit card

You might assume that closing an old credit card you don't use often will help your credit score, since it shows that you're able to live on less credit. But unfortunately, the opposite could happen.

The length of your credit history is a big factor that goes into calculating your credit score. If you close a long-standing account, it could hurt your credit score rather than help it.

Your credit utilization ratio is another important factor that determines your score. That ratio measures the amount of credit card debt you have relative to your total credit limit, and the lower it is, the better. If you close a credit card, you'll lower your total credit limit. That could drive your utilization ratio higher, thereby causing your credit score to dip even more.

Take the right approach

Boosting your credit score could work wonders for you. Just make sure you're going about it the right way.

While the above tactics could backfire on you, a few solid ways to boost your credit are to pay all your incoming bills on time, eliminate some existing credit card debt, and correct errors on your credit report. If you're savvy about boosting your credit score, you may find that you're able to open up a world of affordable borrowing opportunities.

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