Ignorance Is Not An Excuse: 12 Surprising Things That Can Harm Your Credit Score
From the time you begin amassing credit, you start from scratch. Credit scores don’t actually get created until you have had any credit in your name for at least six months.
You can’t put a starting age on it. Many people assume credit automatically starts compiling at 18, a false assumption based on the fact that at 18, most places will begin approving you for credit cards or loans in your name only. But if you haven’t done anything to amass credit, you don’t have a score.
Once you begin that all-important step into credit history, though, it’s important to keep it flowing strong. Ignorance of how credit works don’t help your score improve once you have accidentally messed it up.
Instead of pleading ignorance, learn how your credit score works and what to avoid doing that can harm it. Here are 12 things that may surprise you that can damage your credit score.
12 Things That Can Harm Your Credit Rating
First, it’s important to understand what your credit score consists of so that you have an overall knowledge base on the most important aspects to focus on when you are building credit.
Your credit score is simply a number that represents your ability to pay back money you have borrowed. It is based on five main areas:
- Your payment history
- The amount of debt you currently have
- Your credit history, or the age of your current credit accounts
- The overall mix of credit accounts (credit cards, car loans, mortgages, etc.)
- Any new credit inquiries
Delinquencies generally stay on your report for seven years, contributing to your score in this mix. Amongst those five factors, your score can be detrimentally affected by many things, but here are some of the lesser known ways that your credit can be hit:
1. Errors in credit reporting. Simple human error can mean the difference between good credit and poor credit, and this does happen, even with the major credit reporting agencies. Between human errors and the preponderance of identity theft occurrences, it is very important to keep a close eye on your credit report.
2. Paying off your only loan in a category. You’d think that paying off your debt would be a win, but with credit scores, part of the score, as mentioned above, is your mix of types of credit. Managing both revolving loans and installment loans is actually beneficial to your score, so if you pay off one type of loan and only have the other left, your score can actually go down.
Revolving loans are things like credit cards and they tend to be everywhere, but installment loans are important to your credit score as well. For more information on installment loans and how to obtain them, check out LoanReviewHQ.com/ace-cash-express-review.
3. Closing your credit cards. Again, it seems like another win if you pay off a card and close it out to avoid the temptation of running it up again, but your credit score is also comprised of your credit utilization. Having an open amount of credit available that you’re not using can actually improve your score, and it also helps the “age of credit” factor. The longer you have that card, the better your score as well.
4. Delinquent child support payments. Falling behind in your responsibility to pay your child support is considered a debt and can be reported to the major credit bureaus by the agency that is responsible for collecting the payments.
5. Unpaid utility bills. Moving from a home does not mean you aren’t obligated to pay the prior month’s utility bills. These bills can get sold to a third-party to collect the debt and they can report your unpaid account to the credit bureaus.
6. Yes, even medical bills. While many people argue the legalities of medical bills being reported against your credit, the fact is that they can be. However, these debts are generally treated slightly different by credit scoring models so that the hit to your credit rating is not quite as strong as other forms of debt.
7. Unpaid parking tickets. Yes, they are a big deal. That small inconvenience to you can become a major 50 to 100 point hit if the city that gave you the ticket decides to send you to collections – and they usually do.
8. Outstanding library fees. Even that $2.50 outstanding fine you forgot about can be reported as an unpaid debt. Libraries don’t usually charge much for their past due items, but those little bits can add up, and they want their money.
9. Applying for a cellphone plan. Cell phone providers often use your credit score as a determining factor on whether or not you get approved for their plan. This counts as an official inquiry, and too many inquiries will lower your credit score.
10. Credit inquiries through an insurance policy. Hard inquiries through insurance companies looking to approve you for a policy add up to count against you, as well. If you have been denied for one insurance policy, you may want to wait a while before applying for another.
11. Credit card limit increases. If you request a credit limit increase, the creditor will pull your credit again to see if you still have sufficient standing. Sometimes, though, the added limit helps your credit utilization ratio, so this can be a win in other ways.
12. Bank overdraft fees. Overdraft protection on a line of credit that is not paid back can be reported to credit agencies and count against your score.
Your Credit Score Will Take Care of You if You Take Care of It
Ignoring your credit and the things that impact it is not a responsible action. Whether or not you think it’s an important part of your life, the fact is that you may need credit when you least expect it.
In an emergency, your credit score will take care of your urgent expenses, but you have to take care of it first. Ignorance is not an excuse – learn what your credit is and how to protect it so that it will be there for you if you need it later.
