The credit industry generally rewards borrowers with higher credit scores for their good credit habits.  Unfortunately, their are some very good financial activities that you can participate in that will actually hurt your credit score.  These activities include:

1.  Closing too many lines of credit in a short period of time.  The natural response that many people have after paying off an unwanted credit card is to close it.  The credit industry however looks at the number of credit cards you have, as well as the average ages of those cards.  The ideal number for this is between 2-4 credit cards, at an average age of 6 years, with very low debt. 

 

If you do decide to cancel credit cards, target closing the newest cards that you have, as that will raise your average account age.  Also, just keeping a credit card around and not used will not hurt you in the short term.

 

2.  Having too few debts over a long period of time.  It should be no surprise that the credit bureaus look at how you pay your most recent debts in determining how low or high your credit score should be.  When you pay off debts and do not create new debts, your recent history looks very similar to people who have never borrowed before.  Someone who has never borrowed may not pay their bills on time, or may decide to stop paying back their debts totally.

 

You can avoid this problem by borrowing every so often, whether it is  putting something on a credit card, or borrowing from a loan institution.  While in the short run it may seem foolish, it will allow you to keep your credit rating high for when you really need to borrow money down the road.

 

3.  Getting too many loan rate quotes in a short time.  Every time you check on a rate quote, your credit score is checked, and therefore dinged.  The reason you take a credit score hit is that the credit bureaus believe that your activates resemble someone who is getting ready to take out a lot of loans, that you may be in a dire situation.

 

The best thing to do is to limit your choices to 2 or 3 places that you would like to do business with, before you get a loan rate quote.  Most likely, they will over the same rates and same fees anyway.

 

When considering opening and closing accounts, always consider your credit score, as well as the "master plan" that you set out for your life.  Maybe you've already bought a house and new car, and short term dings don't matter to you so much.  If they do matter however,  it can take 2 years before the actions listed above roll off of your credit report, and allow your fico score to recover.