5. Keep Old Accounts Open
Payment history has the biggest impact on a credit score. That is why, for example, it is better to have paid-off debts, such as your old student loans, remain on your record. If you have any debts that have been paid in full, it is good to leave them on your credit report as it helps your score. Closing credit cards while you have a balance on other cards would lower your total amount of available credit and increase your utilization rate. This could knock points off your credit score and lower it.
If you have an old credit card or other loan that has been repaid in full and is sitting at zero and not earning any interest, just let it continue to reside on your credit report. This will help you in the long run as it will offset any other outstanding credit balances you have owing. It might seem counterintuitive, but keeping old, dormant credit accounts open is beneficial.
4. Group Your Loan Shopping
When you apply for any kind of new credit, it can lower your score for up to a year. That’s because lenders will pull your credit report, known as a hard pull. It leaves a mark on your credit report. Applying for multiple credit products (cards, loans, lines of credit, etc) can compound that problem. The credit bureaus will see it as you needing lots of borrowed cash. In turn, that increases the risk that you won’t be able to handle the new debt load. Statistically, those who have six or more hard credit pulls are eight times as likely to file for bankruptcy as those who have none, according to a study done by FICO.
But there’s a big flaw in the system. When you take out a mortgage, auto loan, or student debt, it’s natural to shop around. In fact, we recommend that you go to multiple lenders to ensure you’re getting the best rate. You are still planning to only get one loan. However, there might be multiple hard credit pulls within a short period of time. That can be bad news for your score.
Luckily, the credit bureaus recognize this situation. The scoring formulas will allow for multiple credit inquiries within a certain “shopping window”. This period of time varies for each credit agency, but it’s typically between 14 to 45 days. During that window, multiple inquiries are treated as a single credit application.
So if you are shopping for new credit of any kind, don’t waste time between inquiries. You also want to limit the overall number of times lenders pull your credit. Don’t let them to pull your credit just to get a quote with current interest rates. They should be able to tell their expected rates without a hard credit pull.