Top Mistakes That Hurt Your Credit Score

En español | Want to get a mortgage? Lease a car? Get a new credit card? You’ll need solid credit.

Anyone lending you money wants to get it back, and 90 percent of lenders use what’s called a FICO score—a number between 300 and 850—to judge your risk factor before they dole out the cash. The higher your FICO score, the more desirable a customer you are, and the lower your interest rate will be.

But even the smartest folks can slip up when it comes to maximizing their credit score, sometimes without even knowing it. Here are the biggest blunders you might be making, and how to fix them.

1. Paying bills late

Your payment history is the single most important piece of information on your credit report. “As little as one day late can hurt your score,” says Barry Paperno, consumer operations manager for Fair Isaac Corp., which originated the FICO score. Unfortunately, nearly 64 million adults don’t pay all their bills on time, according to a survey by the National Foundation for Credit Counseling, a nonprofit group. Car payments, electricity bills, even a late library fine can get reported to the credit bureau. Mark your calendar to pay bills at the same time every month, or arrange automatic payments with your bank.

2. Closing credit cards

It seems logical that canceling a credit card you’re not using would raise your credit score. But that’s not actually the case. After payment history, the most important part of your score is your debt-to-credit ratio: how much you’ve borrowed compared to how much you’re allowed to borrow. So canceling available credit can actually damage your score.

Here’s how: Let’s say you’ve got three credit cards, each with a credit limit of $5,000. You owe $5,000 on one card and nothing on the others, so you’re using 33 percent of your available credit. But close two of those accounts and suddenly you’re using 100 percent of your credit line. Such people are not considered good credit risks.

Before you close an account, Paperno suggests you ask yourself three questions:

• Am I unable to resist the temptation to spend unless I close the account?
• Am I concerned about identity theft due to having been a victim in the past?
• Am I trying to avoid an annual fee for a card I no longer use?
  

If the answer to any of these is yes, it may be wise to close the account, regardless of how it affects your FICO score.

If you really want to close an account or two, close the most recently opened cards (account age is important to your score) and the ones with the lowest credit limit.

3. Not checking your credit reports

Paperno recommends checking your credit reports at least once a year, and more often if you’ve had problems with identity theft, or if you’re a heavy credit user. By law you’re entitled to a free credit report from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. If you want your actual score, you’ll have to pay about $16.