Learning the rules of credit isn’t always as straightforward as you might think. Sometimes, doing something you might think would be great for your credit score can actually have an unintentional negative impact.
The first step in understanding what affects your score is to
know where you stand by pulling your free credit report once annually from each
of the credit bureaus from AnnualCreditReport.com.
Once
you know where it stand, it’s all about vigilance and keeping your eye out for
the surprising things that could ding your score. Here, we rounded up some of
the most unexpected things that can affect your credit.
Late Library Books
You
might not think that the overdue copy of “50 Shades of Grey” that you checked
out of the library would have an impact on your credit score, but that bill
could be sent to a collections agency.
Collections
that can seriously hurt your score can arise from parking tickets and library
fines, as much as from medical bills and credit card charge offs — with the
impact to your score being similar.
So,
get those books back when they’re due or the librarian won’t be the only one
coming after you.
Divorce
Getting
divorced involves dividing your assets as well as your debts, but just because
your ex takes on the mortgage payments doesn’t mean that you’re off the hook.
“The
account remains on their credit report and remains their responsibility until
it is paid and closed. And even then it won’t be removed from their credit
history. Plus if your ex declares bankruptcy, creditors will come after you for
balances on any joint accounts.
Closing an account
Many
people think that getting rid of a credit card that they don’t want, need or
actually use is a good idea since it will show they’re not credit-dependent.
However, this can be a bad idea for two important reasons.
This
can (but will not always) raise your utilization percentage, and a closed
account is often purged from your credit report sooner (7-10 years) than an
open one (remains indefinitely) causing you to lose all of the positive credit
history associated with the account.
One
important note on closed accounts that might surprise you — it doesn’t matter
if you close the account or if the issuer closes it, the effect on your credit
score will be the same.
Just a single late payment
If a
credit issuer reports a late payment on your account, it will impact your
credit score. This problem will affect those with excellent credit more
negatively than those with credit that’s just fair or average.
Having credit cards, but no loans
An
important component of your credit score is the diversity of accounts. This
means that lenders are looking to see if you can handle both revolving and
non-revolving types of credit. While having only one type of account can have a
negative effect on your score.
Disputing an account
If
an account appears on your credit report erroneously when you do your annual
credit check-up (something personal finance experts highly recommend),
disputing it won’t take it off your report but it will affect your credit
score. But disputes aren’t just limited to wrong accounts showing up — you can
dispute an account for a variety of reasons like a late payment that you
contend was paid on time. Consumers need to be aware that disputing that
account could have a negative impact on your score.
Disputed
accounts do appear on credit reports, but in some cases are excluded from
credit scoring, which can have the effect of raising your utilization if the
disputed account(s) have lower utilization than the ones still being counted.
Applying for credit (even when you aren’t rejected)
Every
time you apply for a line of credit, a hard inquiry is placed on your credit
file that will lower your score. Although, don’t worry about getting hit twice
— once for the inquiry and once if you’re rejected.
“When
you’re turned down for credit, the fact that you’ve been denied doesn’t appear
anywhere on a credit report, resulting in no impact to the score — other than
from the inquiry resulting from the application,” Paperno says.
Renting a car
This
isn’t a universal. Renting a car will not always ding your credit score, but
some rental car companies will do hard inquiries on your credit that will
affect your score.
Dollar Rent a Car is one of the major brands that does this as a
practice. It will do
a credit inquiry when drivers ask to use a debit card to rent a car.