21 Unexpected Actions That Could Damage Your Credit Score
Your credit score is susceptible to a surprisingly wide array of seemingly benign activities that can be detrimental. Many individuals unknowingly engage in behaviors that undermine their financial health. Protect your credit score by recognizing the threats that lurk in everyday decisions.
Library Fines
When library fines reach a certain threshold, many libraries turn over the debt to collection agencies, which then report it to credit bureaus. This unexpected mark on your credit report can significantly drop your score.
Unpaid Parking Tickets
Ignoring parking tickets is an easy way to see your credit score decline. Many municipalities have started reporting unpaid tickets to collection agencies. What starts as a minor fine can end up costing you in credit points.
Closing Old Credit Accounts
It might seem like a good idea to clean up your finances by closing unused credit accounts, but this can actually lower your score. Closing old accounts can reduce your overall available credit and increase your credit utilization ratio, both of which negatively affect your score. It’s often better to keep these accounts open, provided they don’t cost you in annual fees.
Renting a Car with a Debit Card
Using a debit card to rent a car can trigger a hard inquiry into your credit report if the rental company checks your credit. This type of inquiry can temporarily lower your credit score. To avoid this, use a credit card when renting a vehicle, which generally involves only a soft inquiry.
Not Using Your Credit Cards
While it’s financially prudent not to rely on credit cards, not using them at all can be detrimental to your credit score. Credit bureaus look for regular usage and timely payments to establish a credit history.
Disputing a Bill
Filing a dispute over a charge on your credit card can inadvertently lower your score. While the dispute is ongoing, the “disputed” amount is still considered part of your credit utilization. If the disputed amount is significant, it can skew your utilization rate and drop your score.
Co-Signing Loans
When you co-sign a loan, you are equally responsible for the debt. If the primary borrower misses a payment, it will also impact your credit score. Co-signing can be risky, as any mistakes made by the borrower will reflect negatively on your credit.
Paying a Medical Bill Late
Even a small medical bill can end up on your credit report if it goes unpaid and is sold to a collection agency. Once reported, it can stay on your credit history for up to seven years, significantly affecting your score. Always check with your insurance and medical provider.
Using “Buy Now, Pay Later” Services
Missed payments can be reported to credit bureaus, reflecting poorly on your credit history. Always ensure you can meet the payment schedule, as these seemingly benign transactions can become blemishes on your credit report.
Rent Payments
Missing rent payments can also damage your credit score, especially if your landlord reports rental history data to credit bureaus. Consistent late or missed payments can be as detrimental as credit card defaults. Set up automatic payments to keep your rental history positive.
Subscription Services
Failing to pay for your subscription services, like streaming platforms or fitness apps, can lead to collections if the providers choose to report the debts. Once in collections, these small amounts can disproportionately affect your credit score.
Utility Accounts
While utility companies don’t typically report to credit bureaus, they will if you default on payments. Once an unpaid utility bill is sent to collections, it becomes a part of your credit history. Keeping utility payments on time is as critical as paying major credit installments.
Applying for Multiple Credit Cards at Once
Every time you apply for a credit card, a hard inquiry is made on your credit report, which can lower your score. Multiple applications within a short period can be seen as risky behavior by lenders, as it suggests financial instability.
Legal Judgments
Being involved in a lawsuit that results in a judgment against you can severely impact your credit score. Whether it’s from a small claims court or a larger civil suit, any recorded judgment can be detrimental. Legal matters should be settled quickly to avoid long-term financial damage.
Child Support Arrears
Failing to pay child support can lead to serious credit issues, as these debts are often reported to credit bureaus. Such delinquencies are treated with the same severity as any other type of debt in terms of your credit score.
Tax Liens
Although tax liens no longer appear on credit reports as of April 2018, owing significant back taxes can still indirectly affect your credit score. The IRS can place a lien on your assets, and if you seek a resolution, this process can involve extensive credit inquiries. Manage tax obligations diligently to avoid complicated financial situations that could hurt your credit.
Accidental Overdrafts
Occasional overdrafts may not affect your credit score directly, but repeated overdrafts can signal to banks that you’re a high-risk borrower. This behavior could affect your eligibility for future loans or credit opportunities. Keeping a close eye on your account balances can prevent these costly mistakes.
Forgetting to Update Personal Information
Not updating your personal information with lenders and credit bureaus can lead to miscommunications and missed bills, which may go unpaid. An incorrect address or outdated information can delay the receipt of bills, ultimately leading to unintended late payments.
Ignoring Small Balances on Credit Cards
Even a small forgotten balance on a credit card can grow with interest and penalties, potentially leading to collections. It’s easy to overlook these amounts, but they can cause disproportionate harm to your credit score if left unaddressed.
Evictions
Being evicted from a property can have a long-lasting effect on your credit score, particularly if the eviction results in a court judgment. Such records can make future rentals and credit approvals more challenging. Staying current on rent and resolving any lease disputes quickly can help avoid this drastic outcome.
Josh Dudick
Josh is a financial expert with over 15 years of experience on Wall Street as a senior market strategist and trader. His career has spanned from working on the New York Stock Exchange floor to investment management and portfolio trading at Citibank, Chicago Trading Company, and Flow Traders.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business. He has held multiple professional licenses during his career, including FINRA Series 3, 7, 24, 55, Nasdaq OMX, Xetra & Eurex (German), and SIX (Swiss) trading licenses. Josh served as a senior trader and strategist, business partner, and head of futures in his former roles on Wall Street.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently holds areas of expertise in investing, wealth management, capital markets, taxes, real estate, cryptocurrencies, and personal finance.
Josh currently runs a wealth management business and investment firm. Additionally, he is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses professionally.