5 Big Credit Mistakes

July 24, 2008
by Edward Jamison, Esq.

It’s surprising how many consumers make the same credit scoring mistakes over and over again. In an effort to educate consumers on credit and credit scoring, we’ve compiled 5 common credit scoring mistakes into a list that defines each mistake and explains why they are bad and how to avoid them:

Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment. Not only is this the number one on the top five credit scoring mistakes, it’s also number one on the list of credit myths. Ironically, most consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores. A word of advice people, when you’re dealing with something as sensitive as your credit and credit scores, make sure you do your homework before trusting some of these so called ‘industry experts’ before following through with their advice. There are two important reasons why you should not close credit card accounts:

1. Eventually, the accounts will fall off of your credit reports. The information in your credit reports are subject to certain rules in regards to how long it can remain in the report. In most cases, credit information will remain in your credit reports for seven years from the account’s DLA or date of last activity. When an account is open, the DLA will continue to update each month and the open account will never reach that seven-year mark. If you close the account, the DLA will stop updating and the clock will start ticking. Eventually the account will be completely removed from your credit reports.

Why would this be a bad thing? It’s simple – you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores. Credit scores want to see this positive account information. They want to see your long, perfect history of making your payments on time because this information significantly helps your credit scores. This information significantly helps your credit scores so why would you ever want that history to disappear? You wouldn’t! Here’s an analogy for you: let’s say you made straight A’s in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn’t. The same is true for the credit reporting environment.

So, what should you do with old credit cards that you don’t use any longer?
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