Many individuals have tried to hack credit scores. That is to say, they've tried to discover tricks and workarounds in an effort to quickly improve their score. What's worse is they go around teaching other people these hacks with promises of improving credit scores by leaps and bounds.
Unfortunately, many common hacks don't work and some could even have the opposite effect on your score. Some hacks are even based off of beneficial ideas that have been completely misunderstood.
In an effort to clear up the confusion, here's a list of common credit hacks and why they may not actually work.
Opening Several Accounts Improves Your Credit
Much of your score is dependent on how much credit you have available versus how much you owe. A good rule of thumb is make sure you're using less than 30 percent of your combined credit. So if you have a combined credit limit of $10,000 you don't want to owe $3,000.
Some schools of thought advise consumers who are trying to improve their score to take out a several new lines of credit in an effort to bring down the percentage of money they owe. This could work in theory, but you also run the risk of having hard inquiries on your report that will negatively affect your score.
Additionally, if you start applying for a bunch of credit at once it's a huge red flag to creditors. At the point you're left with rejections and hard inquiries on your report, which will definitely bring down your score.
An alternative is to call up your credit card company and ask them to increase your limit. This method is less risky and it could actually decrease your debt ratio.
Carrying a Balance from Month to Month Improves Credit Utilization
Credit utilization makes up 30 percent of your score, and unfortunately some people think that "credit utilization" requires carrying a small balance and paying interest.
This myth is detrimental and a complete waste of money. Paying off your balance in full each month is enough to show credit utilization. Additionally, it's your ability to pay off your debt that actually improves your score. If you're carrying a balance then you're obviously not paying off your debt and it will negatively affect you.
Closing Old Accounts Improves Your Score
This may be the worst myth of all. Many have come to believe that if you close old credit accounts then it shows as if you've taken on less risk. It's like the reversal of the first myth we mentioned.
The only problem is nearly half your score is based on payment history combined with how long you've had your lines of credit open. While closing accounts may prevent you from getting into more debt, it's not going to do much in terms of improving your score. I remember closing my oldest card a few years ago and my score dropped 50 points in one fell swoop.
The only real way to quickly improve your score is to stop taking on more debt (without closing accounts) and actually pay off your balances. This may require you to make more money or it may require you to create a more stringent budget. The point is there are no short cuts to building credit other than to spend less than what you make.