13 Surprising Ways to Wreck Your Credit Score
By Allison Martin
One day, you may decide to retrieve your FICO score, only to discover it has taken a tumble because of a seemingly small mishap on your part.
This happened to me a few years back because I misplaced a bill for a whopping $12.70 that ended up being reported to the credit bureaus. Worst of all, the problem stemmed from a charge through automatic billing on a credit card I no longer used.
The result was an 80-point decrease and several months of regret. My credit score has rebounded since then, but thinking about this small oversight still haunts me.
With my precautionary tale in mind, here are some additional mishaps that can damage your FICO score:
1. Car rental reservations
Planning to rent a car? If you use a debit card to make the reservation, the rental car company might require a credit screening, which can ding your credit score.
Here's a better option: Confirm the reservation with your credit card to avoid the unnecessary credit inquiry and settle the final bill with your debit card upon returning the vehicle.
2. Past-due rent payments
Paying rent on your own time frame may not immediately earn you an eviction notice. But that doesn't mean the landlord won't report your delinquency to each of the three credit bureaus.
My advice: If you're having trouble with rent, meet with the landlord and propose an alternative payment plan until you're caught up. That way, you can salvage your good name and credit rating.
From our Solutions Center: Free help with your credit score
3. Library delinquency
When you check out a stack of books or DVDs, it's easy to forget to return them by the appointed time. But the consequences for this oversight can be worse than you'd think.
My local library assesses a fee of 25 cents per day for outstanding items. Once the account reaches $25, an additional fine of $7.95 is tacked on, and the entire account is forwarded to a collection agency.
Get your materials in on time. And if you lose them, fess up and pay the fees. Otherwise, you'll take a hit to your wallet in the form of fines and, potentially, a lower credit score.
4. Outstanding medical bills
We've reported on the option of making payments to ease the financial burden of major medical bills. But if you sign up and don't hold up your end of the bargain, expect to receive a call from a collection agency.
Promptly tending to the matter bolsters your chances that the payment privileges will be reinstated. However, muting the ringer or sending the calls to voice mail will eventually result in a blemish — in the form of a collection account — to your credit report. Those marks stick around for at least seven years.
5. Delinquent tax obligations
Did you receive a hefty bill from Uncle Sam's headquarters or the local tax collector for unpaid taxes? You can run, but you can't hide. They will eventually track you down and demand what they're owed.
If you fail to respond and work something out, expect your credit score to take a dive.
6. Defaulting on recurring bills
If you are slightly past due on a bill from cellphone, utility or other providers of recurring services, chances are you'll receive several notices before services are terminated.
But when they've had enough, expect to be turned over to collections and subsequently reported to the three credit bureaus. So, don't ignore correspondence or fail to settle your outstanding obligations.
7. Breached gym membership contracts
Tired of forking over your hard-earned cash each month for a gym membership you aren't using?
Understandable. But walking away without properly closing the account could cost you in the form of early termination penalties and a damaged credit score.
8. Unpaid traffic citations
Most of us are aware of the consequences associated with ignoring tickets issued by law enforcement. But what about those random tickets issued by parking services at the local university or the downtown street patrol?
Ignoring them and failing to pay probably won't land you in the slammer, but you may be taken aback when the amount — plus a host of fees — shows up as a collection in your credit profile.
9. Closing credit cards
Now that your credit is in stellar condition, you may decide to cancel all credit cards with zero balances. Or maybe your credit card issuer will close the account because of inactivity.
However, the effect on your credit score may not be pretty, because you lose a portion of your available credit. That increases your credit utilization ratio, which accounts for 30 percent of your credit score. An increase in this ratio has a negative effect on your score.
And closing credit cards with outstanding balances won't help you either, because it doesn't make the debt magically disappear from your credit report.
10. Too many credit card applications
Ten percent of your FICO score is determined by how you shop for credit. According to MyFICO:
If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your FICO® scores if you don't have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your FICO scores.
So, remember that the next time you're offered a credit card at the checkout counter that can save you a decent amount of cash on the purchase. The price of that one-time savings may be a lower credit score.
11. Inadequate credit mix
If you're looking to establish or rebuild your credit, it may be necessary to apply for a credit card unless you plan to go another route. (See "7 Ways to Build Your Credit Score Without a Credit Card"). But opening a single credit card account is likely to have only a modest impact on your score.
According to myFICO:
The credit mix usually won't be a key factor in determining your FICO Scores — but it will be more important if your credit report does not have a lot of other information on which to base a score.
12. In-house zero-interest financing
Strapped for cash but in desperate need of that new mattress or laptop? It may be tempting to take advantage of zero-interest financing if it's offered by the seller. But if the credit line is only equal to the total purchase amount, be prepared for a spike in your debt-to-available-credit ratio.
Simply put, your credit score will take a tumble because 30 percent of your FICO score is calculated by the amount owed to creditors.
13. Maxed out credit cards
Have you ever swiped your magic plastic to cover an expense, knowing full well it was maxed out? Chances are you incurred a penalty and a reduction in points to your FICO score because of an inflated utilization ratio.
Have you experienced a surprise hit to your credit score? Tell us about it in our Forums. It's a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.