5 Surprising Ways To Damage Your Credit Score
Actions you may or may not be taking that could be affecting your credit score in a big way. Keep reading to learn more.
Credit scores can be confusing but they’re an important aspect of your financial well-being. We all know the major factors affecting your credit score – but what about the minor ones you aren’t aware of?
To protect your credit, keep reading to learn more about the forgotten and overlooked ways you may be damaging it.
Not Paying Utilities
Failing to make your utility payments or forgetting to close an account after moving can negatively impact your credit score. Not paying a current or old account on time can result in the utility company turning it over to a collection agency and then reporting your delinquency to the credit bureaus.
If you’re moving soon, set a reminder on your calendar to call your previous utility company 30 days after the move to make sure everything is completely paid off.
Closing Credit Accounts
While tempting, closing a credit account with a zero balance can hurt your score in two ways. It reduces your total credit amount, which can raise your credit utilization ratio, and it can shorten the length of your credit history.
Credit utilization ratio is the percentage of credit you’re using of the total credit available to you. For example, if your credit limit is $100 and you use $10 of that limit, your credit utilization ratio is 10%. If you close an account, the amount of total credit available to you shrinks, raising your percentage used. Let’s say your credit available goes from $100 to $50, you’re ratio percentage increases to 20%, giving the appearance you’re spending more money when you really aren’t.
Renting A Car
Rental car companies prefer a credit card as the form of payment when renting a car, rather than a debit card. This may seem fishy, but it makes sense considering what’s at risk.
If they allow you to use a debit card as a form of payment, they may run your credit to ensure you’re a responsible borrower, resulting in a hard pull on your credit report.
Renting a car could also hurt your credit if you end up owing money to the rental company. If the bill goes unpaid, it will get sent to collections and possibly reported to the credit bureaus.
Breaking A Gym Contract
Be sure to read the fine print before signing your gym contract because it may not be so easy to get out of. Some people will set up automatic payments and tell their bank or credit card to put a stop-payment on the withdrawals if they want to cancel their membership early. The catch? The gym could then send you to collections and report it as a non-payment to the credit bureaus.
Ask the customer service representatives at your gym what it will take if you need to cancel your membership down the road. Thoroughly read the contract to make sure you understand when it will end, and if you have the option to cancel early so you don’t risk paying for a membership you might not use.
Paying Your Rent Late
If at all possible avoid paying your rent late. Your landlord or the property management company can report the late payment to the credit bureaus which can have a significant effect on your credit score.
To avoid this, set your rent to automatically withdraw from your account and set a calendar reminder for the first of the month to make sure it went through.
Beyond being a responsible consumer, it’s a good idea to monitor your credit by reviewing your credit reports yourself. Every year, Equifax, Experian, and TransUnion each allow you to access a report for free. Take advantage of this and review the reports to check for unusual activity or anything you can improve on the following year.