By Allison Martin
The next time you check your credit score, you might discover it has taken a tumble because of a seemingly small mishap on your part. This happened to me once because I misplaced a bill for a whopping $12.70. My nonpayment ended up being reported to credit bureaus, also known as credit-reporting agencies. The result was an 80-point decrease in my credit score and several months of regret. My credit score rebounded, but this small oversight still haunts me.
With my precautionary tale in mind, here are some other types of mishaps that can damage your credit 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. That can ding your credit score.
Here’s a better option: Confirm the reservation with your credit card to avoid the unnecessary credit inquiry. Then, settle the final bill with your debit card upon returning the vehicle.
2. Past-due rent payments
Fail to pay the rent on time, and the landlord might report your delinquency to credit bureaus. 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.
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 each outstanding item. 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, your credit score could take a hit.
4. Outstanding medical bills
If you’re having trouble paying medical bills, make sure you promptly tend to the matter. Negotiate or request a payment plan, for example.
Ignoring collectors by muting the ringer on your phone or sending their calls to voicemail can eventually result in a blemish — in the form of a collection account — on your credit report.
5. Delinquent tax obligations
Did the Internal Revenue Service or the local tax collector send you a hefty bill 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. If you don’t want to or can’t work out a payment plan with the IRS, let a reputable expert help you with your tax debt.
6. Defaulting on recurring bills
If you are even slightly past due on a bill from a cellphone or utility company or other providers of recurring services, chances are you’ll receive several notices before services are terminated.
But once the provider has had enough, expect to be turned over to debt collectors and subsequently reported to the three main nationwide credit-reporting companies — Equifax, Experian and TransUnion. Don’t ignore correspondence or fail to settle outstanding obligations.
7. Breached gym membership contracts
Even if you are tired of forking over hard-earned cash each month for a gym membership you aren’t using, don’t just walk away.
Properly close the account, or it 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 tickets issued by parking services at the local university or the downtown street patrol? Ignoring citations and failing to pay them could show up as a collection in your credit profile.
9. Closing credit cards
Closing a credit card account sounds smart, but in fact, it can hurt your credit score. In fact, it’s cited in “The 10 Most Common Credit Sins and Mistakes.”
Closing an account impacts what’s known as your credit utilization ratio: the percentage of your available credit that you are using. This ratio affects both FICO credit scores and VantageScore credit scores. The lower your ratio — meaning the less of your available credit you’re using — the better your credit score will be.
Closing a credit card account that you’re not using would decrease your available credit, however. That would in turn increase your credit utilization score, hurting your credit score.
10. Too many credit card applications
Ten percent of your FICO credit score is determined by how you shop for credit. According to Fair Isaac Corp., or FICO, the company behind FICO scores:
“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 this the next time you’re offered a store credit card at the checkout counter as part of a deal that could save you some significant cash on the purchase. The price of that one-time savings might be a lower credit score.
11. In-house zero-interest financing
Strapped for cash but in desperate need of that new mattress or laptop? It might 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 credit utilization ratio.