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Think of your credit score as a living thing that you need to continually nourish. It's not enough to get it in good shape and then forget about it. You need to constantly cultivate your score and maintain good habits to keep it healthy and alive.
But just like ignoring a houseplant that counts on your care for survival, your credit score can wilt if you don't take care of it properly. And it will downright wither away if you do something to seriously hurt it. To keep your credit score in full bloom, avoid these five actions.
1. Do Not Close Old Credit Cards
Maybe you've finally paid off the balance on an old credit card and are ready to celebrate the demise of your debt. Or perhaps you've found a new rewards card you like better than the one you'd been using. Before you call up the issuer to cancel the card, think twice.
That's because when you shut down an old credit line, you're also triggering a reduction in your overall credit limit. That could increase your credit utilization ratio—the amount of credit you use each month compared with the amount of credit available to you. The lower your ratio, the better your credit score.
Another way it could hurt your score? By decreasing the average age of your credit history. Most scoring models consider the length of your credit history, or how long the accounts in your file have been open. If you close an account, you lose all those years of credit history for that card. Length of credit history is not a huge factor in your credit score, but it does play a role. The more accounts you have that are open and active for a long time, the better.
So even if you stop using a card, it's probably beneficial to keep the credit line open. Of course, if you're worried it will tempt you to spend more, stick it in a drawer so it's out of sight. Just be sure to pull it out once a year or so and use it on a small purchase to keep it active—that way, your issuer won't close it down because of a lack of activity.
The exception? If you're paying an annual fee on a card you don't want anymore, you'll probably want to cancel that one. But before you do, call your issuer and ask if they can convert it to a no-fee card. Most major issuers will be able to do that—allowing you to keep the credit line open without having to pay the annual fee.
2. Do Not Stick to Just One Type of Credit
Another factor that plays a role in your credit scores is your "credit mix," which is how many different types of revolving and installment credit loans you have. It accounts for 10% of your FICO® credit score.
You don't need a ton of different credit accounts, but people with the best scores typically have a diverse portfolio of credit accounts. That may include a student loan, a car loan and a couple of credit cards.
Of course, you shouldn't take out new credit just for credit's sake, but even if you're averse to credit cards, it's probably wise to have at least one or two in your wallet to diversify your credit mix.
3. Do Not Apply For Too Many New Lines of Credit
While keeping a diverse credit mix is important, that doesn't mean you should go crazy and apply for every credit card out there. When you apply for new credit, typically the lender will request your credit report to help them make a decision. That check is called a hard inquiry, and these inquiries remain on your credit report for up to two years. Most hard inquiries will result in a small ding in your credit scores, though they are erased pretty quickly. But too many hard inquiries can have a negative impact on your scores.
This is especially important in the months before applying for a big loan, like a mortgage. During that period, you'll want to abstain from applying for new credit altogether so you can get your credit in the best shape possible.
4. Do Not Fall Into a Pattern of Late Payments
The biggest factor in determining your credit score is whether you make payments on time. The best thing you can do to keep your credit scores healthy and flourishing is to be vigilant about never missing a payment. Even if you can't afford to pay off a balance in full, it's vital that you make at least the minimum payment on time.
5. Do Not Ignore Your Credit Report
You may already know you actually have more than one credit score—in fact, you probably have hundreds. But all scoring models will reward you for good credit behavior and ding you for bad behavior—and they'll make those decisions based on the information in your credit reports.
To keep your credit scores healthy, you'll want to periodically check your credit reports to make sure they are accurate. Mistakes on your credit reports could possibly hurt your scores, so you'll want to review them at least once a year to make sure they are correct. That's also a good way to ensure no one else is opening credit in your name.