Don’t needlessly lower your credit score

When people get into financial difficulties, their credit scores can start to plummet. Unfortunately, many Americans know little about the factors that affect their scores.

Some are fairly obvious, like not paying bills on time and letting credit card and other debt balances get too high. However, sometimes people will take actions that they assume will raise their credit scores when in fact they make these worse.

For example, many people close their credit cards once they’ve paid them off. They may not want the temptation of having that credit available. However, that decreases your overall credit limit, which can lower your credit score. It’s better to have a low utilization rate — meaning you use just a small percentage of the debt that’s available to you.

Many people think it’s wise to have as few types of credit as possible. For example, they may put all of their purchases on credit cards. However, 10% of your credit score is based solely on the variety of your debt. Therefore, having a credit card, a car loan and a mortgage can be good for your credit score — assuming you handle them all responsibly, of course.

There’s a myth that checking your credit report will lower your credit score. In fact, you can and should check your report — particularly if you have paid down your credit or you have concerns about it. This is called a “soft inquiry,” and it doesn’t impact your score. What does affect it are “hard inquiries,” which is where potential lenders check your score if you’ve applied for credit. By checking your credit score, you may spot errors, items that should have been removed but weren’t and fraudulent purchases, such as those caused by identity theft.

If you are considering filing for bankruptcy, it’s probably wise to check your credit score and your credit report to get an accurate picture of your credit situation. This will help you better decide whether bankruptcy is the best move for you.