Why Leaving Your Credit Alone Helps Your Credit Score

If you have less than stellar credit, you may want to jump into action to fix your credit score as quickly as possible. However, action may be the opposite of what you need for a credit score boost. In fact, one of the best things you can do to improve your credit score is nothing. Credit reports and credit scores are a long game, and there are few quick actions to turn a bad score into a good one, or a good one into a great one. But that doesn’t mean you can’t fix or improve your credit. Follow along to learn why leaving your credit alone helps your credit score.

Items stay on your credit report for a long time

If you have a bad credit score and want to buy a new home or car with a loan, you may be in for a tough path forward. If you can get approved at all, you will face higher interest rates than the best credit borrowers. You might want to put in some work and hustle to fix your credit score in a short period of time. I’m sorry to be the bearer of bad news. In most cases, you can’t fix a bad credit score quickly.

The biggest reason for the slow recovery process is how long it takes for negative information to drop off of a credit report. Late and missed payments stay on your credit for seven years. Some negative data, like a bankruptcy or judgement, can stay on your credit for up to ten years. With a full decade to get rid of the worst credit mistakes, there is little to do to get rid of those bad marks.

The one exception is if you find negative information that ended up on your credit report in error, which is very common in the United States. If you do find negative derogatory information on your credit report that is not accurate, you can file a dispute with the credit agency to get the problem information removed. In a few rare cases, you may be able to get a negative item removed if it has been paid and resolved, but that is rare. In most cases, you’ll just have to wait it out.

The pursuit of new credit lowers your credit score

You might think that you can offset one negative credit account with a positive account. This is true to some extent in the long-run, but in the short-run new credit harms your credit score. Just the act of applying for a credit card or loan likely means the bank will pull a copy of your credit report, which alone can lower your score a few points.

If you open a new account, you also lower your average age of open credit accounts, which is a another metric used to calculate your credit score. Older accounts help your score, and newer accounts lower your score initially. As those new accounts age, they will slowly help your credit score, but in the short-term, new credit account and new inquiries only lower your credit score.

If you have a great credit score, the impact of opening a new account is small enough that it shouldn’t deter you from opening a new credit account if it makes sense for your personal finances. But if you have a low credit score, new credit applications and credit cards just dig you deeper in the hole. That is something you should avoid if possible.

Closing accounts can lower your credit score

In the last section, we discussed how older accounts help your credit score. Because that is the case, closing credit accounts can lower your credit score. Even if the account has negative information, it won’t drop right away when you close an account. It is still there for the full seven years. So do your best to keep your average age of credit as high as possible while trying to recover from a bad credit score.

For example, if you have two credit cards and one is four years old and one is two years old, your average age of credit is three years. If you close the older card, your average age of credit goes down to two years. Not good for your credit.

Don’t be fooled into closing a newer account, though. Once an account is open, the impact has already hit your credit score. Like the older account, your best bet is to just leave it alone and let it age and slowly help your credit score increase.

Paying off debt is the only quick fix

There is one big exception to the rule where you do have the power to quickly increase your credit score. Aside from finding and fixing errors, the best way to fix your credit score, if you have outstanding credit card or other revolving debt, like a line of credit, paying off your debt should improve your score over the next month or so.

Contrary to a common myth, you don’t need to use your credit card every month to increase your credit score. You don’t need to carry a balance to help your credit. The opposite is true. The best credit card balance for a high credit score is $0.

Paying off debt is often easier said than done, but it will help you increase your credit score. The impact won’t be instant. Most banks report credit balances and payments monthly, so you’ll have to wait until the next reporting cycle for your newly paid off debt to show up as paid. When that happens, however, your score should go up instantly

Don’t touch, even if you are tempted

Outside of fixing errors and paying off revolving credit balances, there is no quick answer to a bad credit score. That doesn’t mean you should not try to improve your score. As you probably know, a high credit score opens up the door to the best interest rates, loan options, and rewards credit cards. If that sounds like something you want in the future, keeps your hands off and let your credit fix itself. Make 100% on time payments going forward and pay off any outstanding debt and the only thing standing between you and the 800+ credit score club is time. It may be frustrating, but it is well worth the wait.