People are always looking to improve their credit score, but a lot of the steps people take do more harm than good.
Take, for example, paying off old judgments, closing accounts and consolidating credit cards. While in some cases it might be the right thing to do, other times it turns out to be ineffective or worse, detrimental, to their score.
Paying off judgments that are at least 24 months old can bring an old derogatory, that the scoring formula had deemed relatively insignificant, back to the forefront. Nevertheless, these debts must be paid. Often it’s a matter of timing – you don’t want to bring up a black mark if you are aiming to apply for credit in the near future.
Closing accounts that are “beyond repair” will not fix the situation, it will only make it worse. For instance, if you have a balance on a credit card, but you still want to close that account it will reduce your credit limit to zero, while your balance remains intact. The amount of debt you carry and your overall amount of credit available to you supply your credit score with approximately 30% of its points. In fact, there is no positive reason to close an account, from a score perspective. That doesn’t mean you should never do it, but not if your intention is to improve your score. If you feel still have questions about this scenario, you can read more here.
While there is an upside to consolidating credit cards, mainly the savings you’ll find by transferring to an account with a lower interest rate, other approaches to consolidating can run your credit score through the wringer. Depending on which route you take, your credit score will feel the repercussions. In general, try not to max out your new line of credit in the consolidation process, and be cautious of the darker side of debt consolidation.
Often, people do more harm than good with their aggressive attempts to clean-up their credit report. It’s a long, slow road to financial freedom. Practicing healthy credit habits over time wins the race.