5 More Surprising Things That Hurt Your Credit Scores
In reality, though, my initial list of five items represented just the tip of the iceberg.
Unfortunately, due to the quirks of the credit-scoring system, there are a host of other seemingly harmless actions you might take that can lower your FICO credit scores or any credit score, such as the VantageScore.
Here are five more surprising things that can damage your credit rating:1. Disputing a credit card bill
It's your right to dispute information in your credit reports if the information isn't correct. And under the Fair Credit Reporting Act, data that's outdated, inaccurate or that can't be verified must be removed from your credit reports. (See these tips on the fastest way to get the credit mistakes fixed).
But even though you have the legal right to file credit disputes, that doesn't mean you should – especially if you're in the market for a loan and you know that a bank will be pulling your credit report in the next 30 to 60 days.
That's because when a dispute is initiated with a credit reporting agency, credit-scoring companies like FICO exclude that disputed account when they tabulate your FICO credit score. If the disputed item is, say, a credit card with a zero balance or even a low balance, having a disputed item in your credit report could hurt your credit score by changing your credit utilization rate.
Ironically, the same technique – disputing a credit card bill - could have the opposite effect too in certain cases. People trying to temporarily boost their credit scores sometimes dispute a bill intentionally in order to get a credit card account with a high balance removed from credit scoring calculations. Their goal is to lower their credit utilization and not appear to be "maxed out" with credit card debt. Not surprisingly, credit-scoring firms frown upon such strategies. They see these tactics as "gaming" the system to artificially raise one's credit score.
2. Paying off an old debt or an account in collection
To most consumers, it may seem logical that paying off an old debt or a collection account would help improve your credit rating. But the credit scoring system is anything but logical.
In reality, paying off some debts can be detrimental from a credit perspective. Almost anything can happen when you pay off an old debt from the past. The debt may suddenly re-appear on a credit report -- even if it wasn't there before. The "payment status" of the obligation can change and be listed in such a way that it triggers a drop in your credit score. Or paying the debt may reactivate the legal statute of limitations on that obligation. None of this bodes well for your credit rating or your finances.
That's why mortgage broker Ray Kuplaste of United Capital Lenders tells his clients "not to pay off any old debts" before applying for a home loan. It's just never certain what impact that could have on your credit score.
3. Buying a new motorcycle
So you decided to get rid of your gas-guzzling car and opt for a cheaper, more fuel-efficient set of wheels: a new motorcycle. Too bad nobody ever told you that your decision might have a negative impact on your credit.
How is this possible?
Motorcycle loans are sometimes reported to the credit bureaus as "revolving credit" – making them look pretty much like a whopping amount of credit card debt. And since 30% of your FICO score is based on how much credit card debt you're carrying, having a motorcycle loan that's deemed as revolving debt can lower your credit rating.
4. Using a business credit card
Once upon a time, your business credit card activities never showed up on your personal credit reports. But that's no longer the case.
So assume you're a small-business owner who routinely charges supplies, pays vendors with a credit card, or uses your business credit card to pay for travel to see clients. These days, such heavy use of your business credit card could put your personal credit at risk.
For starters, if your business credit cards appear on your credit report, having big credit balances could lower your FICO scores. Your business debts will show up if you're personally liable for the debts charged, as is the case with many sole proprietorships and partnerships.
Another downside of business credit cards: They're not afforded many of the elements of protection offered under the Credit CARD Act for personal credit cards.
5. Having multiple names listed in your credit reports
This last item, admittedly, is highly debatable, yet interesting to ponder. Would you believe that having numerous names listed about you in your credit reports could potentially lower your credit score? Sounds crazy, right? And maybe it is. Or maybe not.
But Carolyn Warren, a mortgage and credit expert, says that having too many "aliases" or multiple names in your credit reports can hold back your credit score. Her proof? Warren says she long had excellent credit but was never able to crack the 800-point level with her FICO score.
After trying everything, Warren says she finally decided to clear up some of the multiple names and name misspellings that were reported in her Equifax, TransUnion and Experian credit reports.
The result: By deleting all those extra names, Warren says she was finally able to become a coveted member of the 800 FICO score club. Since then, Warren, who's the author of Mortgage Ripoffs and Money Savers, swears by the technique. But FICO officials say personal data, such as your name, or even the presence of multiple names, has absolutely no bearing whatsoever on your FICO score.
Still, it can't hurt to closely check your credit reports to make sure your name is being reported accurately.
Warren's take on multiple names intrigued me. As I explained in my book, Perfect Credit, I've always wondered if it looks odd to lenders or credit scoring companies that I literally have well over a dozen names listed in each of my credit reports.
Part of the reason is that I was previously married and divorced, then remarried again. So my maiden name is in my credit reports, along with my married name(s). But the biggest issue seems to be that creditors often misspell my first name, along with my last name, which is currently hyphenated.
All of which makes me wonder: What happens to people who married and now used hyphenated names or changed their names, perhaps several times, due to multiple divorces?
My best guess? A litany of names in your credit reports probably doesn't look particularly attractive to lenders. They like to see stability, including personal stability. At the same time, there's no widespread proof that I know of that multiple names in your credit files can impact your credit scores.
As for me, getting some of those erroneously spelled names deleted from my credit reports has so far had no impact on my credit scores. I should only be so lucky!
But what about you? Have you ever used a creative technique or an unorthodox method to boost your FICO credit score? If so, sound off here and share what unconventional strategies worked to improve your credit rating.