For example, a recent New York Post report reminds consumers that simply paying down credit card debt is not always sufficient to improve one’s score – especially if an account is closed after being paid off. That’s because a portion of every credit score is determined by the length of time that various credit accounts have been kept open.
The newspaper noted that a person with a score of 650 can see it drop as much as 40 points with a combination of a short credit history, a closed account and perhaps a minor debt that has ended up in the collections process.
A high credit score is more important ever in the current economic climate because lenders are more selective than ever about who they extend new accounts to and how much interest they charge consumers. The credit crunch has made it so that even people who once enjoyed the most favorable borrowing terms may now find themselves deemed higher credit risks than before.
With these things in mind, FICO, which sets the formula used to determine most credit scores, suggests that consumers should also avoid opening new credit cards that aren’t needed, and that closed accounts will still show up on one’s report.
FICO announced earlier this year that its new credit scoring method could benefit some consumers by assigning less importance to debts under $100 and by placing more focus on the frequency and severity of one’s credit missteps.
Another thing to remember is that even if consumers keep up with their payments, their credit score can still suffer by maxing out their cards or consistently staying too close to the limit – generally, maintaining a balance equal to about one-third of available credit is more advisable.
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