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What You Need To Know About Your Credit Score

You’ve never taken on more debt than you can afford, and you always pay your bills on time — so your credit must be great, right?

Not necessarily. Credit scores don’t consider debt-to-income ratios and they take into account many factors beyond just timely payments (although those are extremely important).

Pure and simple, having a good score today is critical for financial success. It gets you access to lenders’ best rates and terms, which can save you thousands of dollars each year. At today’s rates, for example, the total interest owed on a $300,000 mortgage would cost an extra $14,000 for an individual with a credit score of 759 rather than 760, according to An extremely poor score can make it impossible to get a loan to buy a house or a car in the first place.

The financial habits you’ve developed over time or the decisions you’re making could have a negative impact on your credit score without your even realizing it. Here are five habits to avoid:

1.  You run up a large balance on your credit cards (even if you pay it off every month)

After timely payments, the most important factor on your credit report is your credit utilization ratio – the percentage of available credit that you’re using on your credit cards, both individually and in sum. “Having a high credit-utilization ratio can be just as damaging to your report as missed payments,” says John Ulzheimer, a credit expert at

Aim to keep that ratio below 20 percent to 30 percent. The higher the ratio, the worse it is for your credit score, regardless of whether you’re up to date on payments.

If you charge everything on one card — for  convenience or to rack up rewards points — and  then pay off everything when you get your bill, you may still be doing damage to your credit score. Most credit card companies report the balance due at the close of each billing cycle. So if you owe $900 on a card with a $1,000 limit, your utilization ratio on that card is 90 percent, even if you pay the balance in full the day you receive your bill.

To keep your score as high as possible, go online and pay your card before the closing date, rather than wait for the bill to come in the mail. Or, if you think your utilization on one card is creeping up too high, switch to cash or another card mid-month.

2.  You assume your spouse’s credit actions have nothing to do with yours

Though the credit bureaus keep separate scores for spouses, the actions of your better half can still impact your credit score. Any joint accounts or loans factor into both of your credit scores separately – so if one spouse fails to pay bills on time, or likes to carry a high credit card balance, the other spouse’s credit score will likely take a hit. “Any joint account will appear on both of your credit reports, and the payment history is counted as if it’s your own, whether or not you use it,” says Gerri Detweiler, director of consumer education at

Some married couples opt to put all credit card accounts and loans in one spouse’s name. The problem is that it leaves one partner with a huge gap in his or her own credit history. In the event of a divorce or death, it could be difficult for that person to access credit on his or her own.

3.  You close or open several credit card accounts at once

Some consumers mistakenly think that closing down credit cards they rarely (or never) use will boost their score, but the opposite occurs. Closing down accounts will decrease your total amount of available credit, which will automatically push up your credit utilization ratio. In general, there’s no reason to shut down old credit cards unless they carry a high annual fee.

On the other hand, opening additional cards is one way to decrease your overall credit utilization ratio. Remember that every time you apply for a card, the issuer puts in what’s called a “hard inquiry” to the agencies for your score. “It’s fine to have lots of cards at one time as long as you’re able to responsibly manage them,” says Beverly Harzog, author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. “But opening too many at one time can really ding your score.”


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