Fix My Credit | What Not To Do When Trying to Fix Your Credit

If you discover a problem with your credit score and have been saying “I want to fix my credit“, don’t act without knowing exactly what to do. Doing things that seem like they might improve your credit, might actually damage your credit score. Before getting into the five mistakes you need to avoid, let’s look at what makes up a credit score, as defined by the fine folks at Fair Isaac:

The exact formula that makes up your credit score is a closely guarded secret.  Still, Fair Isaac has provided these components and the weighted impact of each (approximate):

1. Your Payment History (35% of your score)
2. The Amount of Credit You are Currently Using (30% of your score)
3. Your Credit History, or Length of Credit (15% of your score)
4. How Regularly Your Credit is Checked by Lenders (10% of your score)
5. The Different Types of Credit You Have (10% of your score)

Mistake #1: Cancelling old credit cards. 15% of your credit score comes from the length of your credit history. So, cancelling your oldest credit card can often be a mistake. Also, if you have balances on other cards, cancelling an old credit card can also worsen your debt ratio, which makes up 30% of your score.

Mistake #2: Having too many open lines of credit. 10% of your score comes from the types of credit used. If you have a lot of sources of revolving credit (i.e., credit cards), you can be seen as a credit risk because you have the potential of racking up a lot of debt very quickly.

Mistake #3: Maxing out your cards. 30% of your score comes from the ratio of your credit card debt and your credit limits. Thus, if all of your cards are maxed out, your credit score is suffering even if you’re keeping up with the payments.

Mistake #4: Requesting a credit limit reduction. Some people believe that they have too much credit and that they’re better off with a credit limit reduction. In fact, the only significant effect a limit reduction has on your credit score is a negative effect on your debt ratio.

Mistake #5: Declaring bankruptcy. Many people go forward with bankruptcy because they believe it’s the only way out. Instead of taking such a drastic measure, seek counseling first with one of the more legitimate sources mentioned above. Bankruptcy can really decimate your credit score for a very long time. Quite often, there are better solutions, such as negotiating with creditors and so forth.

Now that you know some of the things that will not help to improve your credit score, take the next step and learn all the secrets to truly improving your credit score: checkout the FICO® Formula.