NEW YORK (Credit.com) — It never fails. You think you're doing all the right things when it comes to your credit. You pay off an old delinquent debt, close old accounts, maybe even decide to stay out of debt altogether. Then your credit score takes a dive. You thought you were being financially responsible. What gives?
We hear these kinds of questions frequently from people tracking their credit scores with our free Credit Report Card, so we felt it was important to address some of the unforeseen consequences that often arise in the word of credit. A credit score is a calculation of your credit behaviors that tells a lender how big of a risk it is to lend to you. Basically, they want to see if you've had credit, whether you've had it for a long time, and if you've managed it responsibly. However, it's more complex than that, which is why we're looking at some common-sense moves that don't necessarily lead you to better credit.
Here are the good deeds that won't go unpunished by your credit score:
1. You paid off your last credit card balance and are finally debt-free. But your score drops, or, after months of inactivity, you have no score at all. Credit scores rely heavily on recent data to be able to predict risk. So while you don't need -- and shouldn't want -- to be in debt to have a good credit score, there must be at least one piece of recently-reported information on your credit report to continue to receive a credit score.
2. You don't have one of your parents' credit cards, but instead choose to make your own way with an after-school job and money in the bank. Yet some of your classmates who are authorized users on their parents' cards have better scores than you, and the nice cars to prove it. It's true that when you become an authorized user on someone else's card, your credit report now includes the entire history of that account, which alone can provide a young person with a good credit score, despite no job or money in the bank.