8 Surprising Ways to Hurt Your Credit Score

1. Charging Everything

With credit cards offering attractive rewards programs, it may be tempting to put every purchase on plastic. But even if you pay your balance in full every month, racking up too much debt can wreck your score -- you'll get points for paying on time, but your credit report will show a consistently high balance.

"If you have an unusually large balance, it may not be a bad idea to pay early just to keep it as low as possible," explains Levin. There's also a scary side note to your spending. Some credit card companies track where customers shop and penalize them for purchases that could signal financial difficulties.

Swipe your card at a red-flagged establishment -- such as a discount store, auto repair shop, even a marriage counselor -- and your creditor may lop your credit line or hike up rates. "Whether it's right or wrong, fair or not fair, that's the way it is," Levin advises.

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2. Putting Your Cards On Ice

Freezing your credit card or burying it in the backyard is such age-old advice, it's practically a clich'. But letting your account go stale isn't a smart solution. If your account goes dormant, the company may stop reporting it to the credit bureaus -- or they could shut it down completely.

Not only will your credit history be impacted, but an account that's been closed by the creditor carries more stigma than an account that's been closed by the consumer, according to Clarky Davis, the "Debt Diva" at CareOne Counseling, a credit counseling and debt management service in Columbia, MD. Again, the simplest solution is to set up an automatic monthly payment to keep the account active and maintain your credit history.

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3. Going on a Credit Bender

Opening new credit card accounts may seem like a good way to rack up more available credit, but every time a potential lender looks at your credit score, it counts as an inquiry -- and stays on your report for two years.

Too many inquiries could hint that you're planning to open up several new lines of credit. "If you appear to be going on a credit binge, that will scare creditors," Levin says. But what if you're shopping around for a mortgage or car loan and simply want to find the best rate? No worries -- as long as you finish your applications within 30 days, your score won't be affected.

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4. Not Sweating the Small Stuff

If you're juggling several sources of debt -- and these days, who isn't? -- experts will tell you to chip away at high-interest accounts first. But realize that everything from unpaid parking tickets to library fines can wind up on your credit report. "Look out for smaller bills that you may have overlooked," Davis cautions. She recommends extra vigilance after a move; a few leftover pennies on your utility bill may haunt your credit report for years.

If you're having trouble keeping up with payments, resist the urge to stash your past-due notices at the bottom of a drawer. Instead, contact your lender and ask for a little lenience. "The truth is, more lenders are willing to be flexible right now," Levin says. "But you're never going to know unless you talk to them. The worst thing they can say is no, so don't be afraid to call and ask."

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5. Consolidating Your Loans

Merging your debts might make it easier to keep track of bills, and it could help you avoid astronomical interest rates. But lumping all of your loans together can also reduce your debt ratio if you're not careful.

Arnold offers this example: Say you have three credit cards, each with a $3,000 balance; if you transfer those balances to a zero-interest card with a $10,000 credit line, you're suddenly using a whopping 90 percent of the credit on the new account. "You've got great intentions, but it could tank your score potentially," Arnold says. You may also be hit with hefty interest rates after the card's introductory period ends, which will increase the amount you owe. But consolidating isn't always a bad idea -- if you do your research and find a good rate, you could save thousands in interest, and that might offset any resultant blip in your credit score.

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6. Closing Your Old Accounts

After whittling your credit card balance down to zero, closing the account may seem like the responsible (and liberating!) next step. "I think anyone with common sense would view that as being financially prudent, especially if that line of credit is a source of temptation for you," says Curtis Arnold, founder of CardRatings.com, a website that evaluates credit cards.

But Arnold warns that shutting down an account will affect two major components of your score -- your credit history and your utilization ratio, which weighs the amount of credit you have against the amount you're using.

Instead of closing the account, set up the card to auto-pay one small bill (like your cell phone plan) and deduct the balance from your checking account each month. You won't have to worry about maintaining the account, but you'll reap the benefits of a low balance and a long-running history.

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7. Staying Debt-Free

In a topsy-turvy economy, you may be tempted to avoid all debt like the plague. It's a good idea in theory, but if you don't have a dime of debt to your name, lenders have no way to gauge whether you'll be a reliable borrower. "It's a double-edged sword," Levin explains. "The good news is, you can sleep at night. The bad news is, when you're trying to get something that requires credit and you have a thin file, they really can't find much of a history."

A sizable chunk of your score reflects your ability to handle a few types of credit (such as mortgages or revolving credit). No debt means no track record -- and that could cause your score to suffer.

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8. Crossing Your Fingers

You don't want to find out about a flaw in your credit report when you're bidding on a new house or negotiating with a car dealer. So be proactive: Once a year you may request a free copy of your report from AnnualCreditReport.com, which is sanctioned by the Federal Trade Commission.

Should you need access to your credit reports at other times throughout the year (if you're about to make a home purchase, for instance), you can always request them via FreeCreditReport.com, for a small fee. Comb through it to make sure there are no glaring errors, and be extra-vigilant if you have a common family name. "John Smith III could have creditors that show up on John Smith II's credit report," Davis cautions. If you spot anything fishy, file a dispute form immediately and keep a written record of it. After all, you've worked hard to ensure the best credit score possible -- and it's up to you to make sure your prudence is paying off.

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More on Credit

-- Steps to a Higher Credit Score

-- Have Bad Credit Score? 5 Things to Kiss Goodbye

-- How to Read Your Credit Report

-- Quiz: What's Your Credit I.Q.?




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