Mistake No. 20: Closing credit card accounts unnecesarrily
Don’t close accounts in order to boost your credit score, because closing credit card accounts can actually hurt your score. That’s because your score takes your “credit utilization” into account, comparing how much you have borrowed with how much you could borrow (i.e. all your various credit limits).
If you close an account, you lose that credit limit, so your credit utilization ratio will rise. For example, if you owe $4,000 and your combined credit limit is $20,000,your credit utilization ratio will be $4,000 divided by $20,000, or 20%. If you close an account and your total credit limit drops to $12,000, your ratio will rise to 33%.
On the other hand, if you have gobs of credit card accounts and want to close a bunch in order to simplify your financial life, that’s not necessarily a bad idea. Think twice about doing so soon before you apply for credit, though — leave time for your score to recover, due to more bills being paid on time and debts being paid down, for example.