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As disheartening as it has been to see your credit score decline, don’t close out your jewelry store account. Your score probably dropped — after opening that new account and charging the engagement ring — because you have a relatively thin credit file, and not much information in your credit reports on which you can be evaluated. By opening that jewelry account, you generated an inquiry on your credit report, which undoubtedly impacted your credit rating. Inquiries account for 10% of your FICO credit scores. Inquiries stay on your credit files for two years and they count against your FICO score for 1 year. So just concentrate on paying down your debts and making all payments on time on both cards, as you have been doing. These two strategies will definitely boost your credit scores over time. But if you cancel the jewelry store card – now, or in another 15 months or so — you risk doing further damage to your credit. Read on to discover why.

How Your FICO Scores are Calculated

There is a lot of misinformation about what goes into your credit score. However, Fair Isaac officials have said many times that this is the heart of what happens: Your credit files – currently those from Equifax and TransUnion – are reviewed. Certain information (roughly 22 items) about how you’ve managed your credit is statistically analyzed. Ultimately, five different categories are weighted to produce your FICO score. Here is the breakdown of those five areas that contribute to your FICO score:

The Formula That Governs Your FICO Score

1.    Payment History: Approximately 35% of your score is based on this category.
2.    Amounts Owed: About 30% of your score is based on this category. (Mainly, you’re evaluated based on how much credit card debt you have).
3.    Length of Credit History: Roughly 15% of your score is based on this category.
4.    New Credit or Inquiries: Around 10% of your score is based on this category.
5.    Types of Credit in Use: About 10% of your credit score is based on this category. (Having a good mix of credit in your credit files is viewed favorably, although some forms of debt, such as mortgage debt, is scored more positively than other forms of debt, like department store cards or furniture store cards).

Based on this information, as well as other advice FICO freely disseminates on its website (www.myfico.com) and elsewhere, you can draw some good general conclusions about what actions can help your credit – and what could hurt it. For example, to increase your credit scores:

Pay Your Bills on Time

• Payment track record is the largest component of your FICO score
• Even if you must make “minimum” payments, do it!
• One late payment can drop your FICO score by 60 to 110 points

Maintain Low Credit Card Balances

• Don’t “max out” any cards
• Try to not to use up too much of your available credit limit
• Spread out debt over several cards instead of carrying big balances

Keep Your Older, Established Accounts Open

• Longer credit history is scored favorably
• Resist the urge to close an account when you pay it off
• Closing accounts can sometimes lower your FICO credit scores

If you have been told that you have a “thin” credit file, “no credit file” or “no credit score,” it is likely due to one of three causes:

1) You’ve Never Had Credit

This would be the case if you’ve never had a traditional credit account, such as a car loan or credit card. Or perhaps you opened one many years ago, but you’ve long since stop using it and your entire credit history has been dormant for many years.

2) You’ve Just Recently Established Credit

Another possibility: you may have actually had credit extended to you, but it was established so recently that the account is not yet being reported by your creditor nor tracked by the bureaus. Sometimes, it can take as long as four to six months for newly-opened accounts to be reported to TransUnion, Equifax and Experian, according to the bureaus.

3) Someone Thinks You’re Dead

I’m not kidding. Read on for an explanation below.

If you recently opened a credit account, it couldn’t hurt to contact your creditor to make sure they have, indeed, reported your newly-opened account. But frankly, there’s not much you can do besides wait for the information to start being supplied by the credit furnisher and monitored by the bureau. Try not to worry too much about it at this point; it should happen soon.

If Your Thin File Isn’t Due To a Lack of Credit, Check Your Pulse ….

There’s another circumstance, however, in which you should be concerned about having “no credit file” or no credit score. It’s when you have, in fact, opened a credit account or multiple accounts, but you’re not showing up on the credit bureaus’ records. The likely problem? Somebody probably believes that you’re dead. No, seriously.

The “Master Death Index”

The Social Security Administration supplies something called a “Master Death Index” to credit bureaus, other businesses and government agencies. If your social security number somehow winds up on that list, you are presumed to be deceased. Obviously, that makes it pretty tough to get a Visa card. Even if you have multiple credit accounts, if one of them suddenly includes a notation that references you as a person who is dead, that can literally kill your whole credit file. If you suspect that this has happened to you, contact the Social Security Administration (http://www.ssa.gov) to get help fixing the problem.

Who Typically Has a “Thin” Credit File?

And who fits into the category of having a “thin” credit file? Traditionally, young adults, immigrants, and women who have not had credit in their own name all fit the classic profile of individuals with “thin” credit files.

Fortunately, all these individuals can boost their credit rating by adding positive information to their credit files. This can be an especially valuable step for those trying to establish credit, those who’ve been told you have a “thin” credit file, or anyone who may have been denied credit simply because you have “no credit file” at all.