Many consumers have likely heard about the biggest ways they can damage their credit score, such as by missing a scheduled payment or by carrying too large a balance from one month to the next. However, there are other ways consumers can inadvertently see their scores slashed that may not occur to them.

For instance, one of the biggest mistakes that consumers who are working to improve their credit rating may end up making is closing their credit card accounts, according to U.S. News and World Report. The problem with this mistake is that it seems like a great idea: After taking months or even years to reduce an existing balance to zero, closing out the card might help avoid the temptation of using it again.

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But this is actually a bad idea because one aspect of a credit score that many consumers may not know about or consider is that the average length of time they’ve held their various accounts is a major part of a credit rating. Therefore, shutting one down, especially one that’s existed for a long time, will actually hurt their rating.

Another mistake many people make that may seem to have nothing to do with their credit is not filling out the right forms when they move, the report said. For instance, this might lead them to miss their credit card bills, which may still be sent to their old address. An easy way to avoid this is to either get statements sent via email or make sure to fill out a change of address form from the post office.

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Sometimes, having a credit card with no limit can be problematic as well, because unless the card is specifically reported as being so, it might have an adverse effect on a consumer’s credit utilization ratio, the report said. For instance, racking up any kind of balance on this card will be applied to the credit utilization for their other cards, boosting it unfairly and thus lowering their score significantly.

It’s important for consumers to review the terms of any credit card they open to understand how the account is reported to the credit bureaus, so that they can better manage their finances in a way that will improve their credit standing over time.

Most negative information can stay on your credit reports for no more than seven years, or ten years in the case of certain types of bankruptcy. Then why is an old collection account still appearing on a reader’s credit reports more than a decade after he stopped paying? Truth is, some debts can haunt you for years to come:

I stopped paying a credit card debt in the middle or end of 2000. In the fall of 2006 a collection agency bought the debt.   I was living in another state and did not realize that a judgment was passed until a year or so later.  It is now may 2012, and this is still on my credit report, more than 11 years later.  What about the 7 years from the date that payment stopped?

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This reader is correct in his basic understanding of how long collection accounts can be reported. Specifically, under the Fair Credit Reporting Act, collection accounts must be removed from credit reports seven years and 180 days after the consumer fell behind on payments on the original account that was later turned over to collections. That’s true whether the debt has been paid or not.

But in this case, it sounds like our reader is not talking about a collection account that’s on his credit report. He’s talking about a judgment, which is a different animal with its own reporting period. The collection agency took him to court, and since he didn’t respond, obtained a deficiency judgment against him. Here is what the Fair Credit Reporting Act says about how when judgments must be removed from credit reports:

Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period.

[Related Article: Collection Agency Out of Business, But Still on Credit Reports]

In plain English that means that a judgment can be reported for up to seven years from the date the judgment was entered by the court. But here is the kicker: if you don’t pay it off or settle it, it may be reported until the statute of limitations has expired. In most states, that’s ten to twenty years! And since unpaid judgments can often be renewed, theoretically at least, an unpaid judgment can remain on your credit reports indefinitely.

This very long reporting period is one good reason to settle up on a judgment. But there’s another good reason to pay it off. In most states, judgment creditors have collection powers than creditors without judgments don’t have. That may include the ability to garnish wages or seize property, such as bank accounts.

Like most debts, judgments can often be settled for less than the full balance. Our reader shouldn’t hesitate to negotiate if he can’t pay the full balance. Of course, if he does strike a deal, he should get it in writing before he pays.

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Image: Neil Conway, via Flickr

It’s not Freaky Friday, but many consumers are finding their financial lives swapped by accident—and it’s having big consequences.

A four-part series from the Columbus Dispatch called “Credit Scars” kicked off this week, examining the damage done when credit reporting agencies blend two credit reports together. The year-long investigation by the paper uncovered thousands of examples of credit reports being blended together. A few examples include a woman whose credit report was mixed with her daughter’s and another woman with a common name who actually had her credit report blended with multiple women by the same name.

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So, who is likely to fall victim to credit report errors and how do multiple consumers’ credit reports get blended together?

The Dispatch examined the records of almost 1,300 individuals who complained to the FTC over the course of 2 and 1/2 years that their credit report had errors because it had been blended with another report. The findings showed that family members are far and away the most likely to have their credit files mixed. Second to direct family members are strangers, followed closely by strangers with the same name and then strangers with a similar name.

Interestingly, consumers also reported having their credit files mixed with their patients, roommates and neighbors, although the number of incidents for these complaints are very small.

The easiest way to make sure your credit report hasn’t been blended with another consumer’s file is to check your credit report regularly. Credit experts recommend checking your report once every six to 12 months.

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The number of consumers in the top credit score range has reached its highest level since fall 2008, a report by FICO Labs shows, which could indicate more Americans are working to better their personal finances, including improving their credit reports. (If you want to know more about how a credit score works, check out: What’s a Credit Score? Really.)

More than 18 percent of consumers now have FICO scores between 800 and 850—the first time the ratio of consumers has grown to this figure since October 2008, FICO Labs reports.

However, the number of consumers with scores between 700 and 799 hasn’t improved in the same manner. The report states 15.5 percent of U.S. residents have scores in this range, which is the lowest the figure has been since FICO Labs began recording the statistic in 2005.

Additionally, the report found that nearly one-third of the country’s consumers have FICO scores between 550 and 699—the most amount of people with a score in this range since 2006.

According to FICO, this data likely denotes there are still a considerable amount of Americans in poor or average financial standing.

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Despite many Americans in evident need of a credit tune-up, Rachel Bell of FICO Labs stated the report indicates a considerable change in consumers’ attitudes toward their personal finances.

“Many consumers have moved into the top tier of the FICO Score range by redoubling their efforts to maintain an excellent credit profile,” said Bell. “Other people have fallen into lower tiers, most likely due to the financial stress that many households have been feeling. Despite this shift, we continue to observe more than half of FICO Scores in the U.S. are between 700 – 850, which means Americans have managed their credit well despite the economic downturn.”

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One facet of the report that stands out, according to Bell, is the percentage of consumers with FICO scores in the 300-549 range—nearly 15 percent. This is the lowest the figure has been since 2006. The reason for the reduced figure, Bell notes, is due to many lenders writing off a substantial amount of bad debt.

“Some consumers who had multiple bad debts and delinquencies a few years ago are now able to move on, and their credit scores are starting to move into the 550-699 range,” Bell added.

What happens when a negative item on your credit reports is from a company that is no longer around? That’s what one of our readers wants to know. She asks:

A collection agency is listed on my credit report several times. I went online trying to find a way to contact them to make payments but the Better Business Bureau says they are no longer in business. Given that they are no longer around, is there a way to get the credit bureaus to remove the information from my credit reports?

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You’re likely in luck here, at least as far as your credit reports go. Under the Fair Credit Reporting Act, you have the right to dispute an item on your credit report(s) if you believe it is inaccurate or incomplete. The credit reporting agencies (CRAs) generally have thirty days to investigate your dispute and either confirm the information with the source, or remove it from your reports. While the law doesn’t specifically state that you can dispute an account because the company furnishing the information is defunct, the fact that you can’t pay these accounts and get the balances updated to zero seems like a reasonable reason for challenging them. Since the company is out of business, it’s not going to respond to a request for reinvestigation from a CRA, and the collection accounts will likely end up being removed from your reports.

I’d recommend you:

1. Make sure you have fairly recent copies of your credit reports from all three major credit reporting agencies: Equifax, Experian and TransUnion.
2. Dispute these accounts in writing with each of the CRAs that are reporting them. I’d suggest you do it in writing rather than online because you’ll have better records of your disputes. Send your dispute letters by certified mail.

[Related Article: Tax Help: How to Dispute A 1099-C Form]

Chances are the CRAs will respond by telling you the information has been removed. If not, then you’ll have to challenge the findings of their “investigation,” but I really doubt it will come to that. Keep copies of your credit reports, and all the correspondence involved, indefinitely.

Also keep in mind this debt may be bought by another collection agency, so it may not be the last time you hear about it. By law, collection accounts may only be reported for seven and a half years from the date you first fell behind with the original creditor. That’s true, regardless of whether you pay them or not.

If you do hear from a new collection agency about this debt, you’ll find our infographic, What to Do if A Debt Collector Calls, handy.

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Image: Jasoon, via Flickr