Five common money mistakes that hurt your credit score

Closing a paid-off credit card feels like good financial hygiene. It's not. Closing the card reduces your total available credit limit and increases your utilisation ratio on remaining cards. It also lowers your average account age, which is a meaningful FICO factor.

Worked example: you have a $5,000 balance across $20,000 total credit limits (25% utilisation). You close a paid-off card with $5,000 limit, leaving $15,000 total. Same $5,000 balance is now 33% utilisation. Score impact: typically 20-40 points down within one reporting cycle.

The right move: keep paid-off cards open with a small recurring charge (like a Netflix subscription) paid in full each month. Preserves credit limit and account age, costs nothing.

Total utilisation matters, but per-card utilisation matters separately. A maxed-out card hurts your score even if your aggregate utilisation across all cards is reasonable.

Example: you have three cards each with $10,000 limits. Total $30,000 limit. You charge $9,500 to one card (95% on that card) and $0 to the others. Aggregate utilisation is 32% (looks fine) but the single maxed card costs 30-50 points from FICO's per-card analysis.

The right move: spread balances across multiple cards if you must carry them, keeping each card below 30% utilisation, ideally below 10%.

Co-signing a loan for a friend or family member makes you 100% legally responsible for the debt. The loan appears on your credit report, affects your DTI for any future borrowing you do, and any late payment by the primary borrower hits your score.

Worst case: the primary borrower defaults. You're now liable for the full balance, the loan is in default on your credit, and the lender can pursue you directly without first exhausting collection efforts against the primary borrower.

The right move: only co-sign when you'd be comfortable paying the full loan yourself if needed. For friends and family who need help, gifting a smaller amount or lending privately (with documentation) usually beats co-signing.

Retailers train cashiers to offer instant store-card sign-up with promised 10-15% discount on that day's purchase. Each application is a hard inquiry (3-7 score points down) and a new account (lowers average age). The 10% saved is rarely worth the credit damage.

Store cards also typically have high APRs (25-30%) and low limits, which means even small balances create high utilisation ratios. The cards are designed to capture both the application discount and ongoing interest revenue from borrowers who carry balances.

The right move: skip the store-card offer unless you're making a single very large purchase you can pay off immediately, and even then evaluate whether the dollars saved justify a multi-year credit-score effect.

An old collection on your credit report continues to drag down your score even after the original debt is years old. Many borrowers leave them untouched because the balance feels too old to matter.

Under newer FICO models (FICO 9, FICO 10), paid collections are ignored entirely and medical collections under $500 are excluded regardless of payment status. So paying off a medical collection can produce immediate score improvement under those models.

The right move: pull all three credit reports, identify any remaining collections, and either pay-for-delete negotiate them (if mainstream lenders are still using older FICO 8), dispute them with the bureau if they're inaccurate or past the 7-year removal date, or settle for less than full balance if cash flow allows.