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11 Things That Can Hurt Your Credit Score

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This is part 1 of a 4-part series on credit.

 

Your credit score figures into much more than whether or not you qualify for a credit card. It can also be a contributing factor to getting a job, an apartment, utilities, insurance and more.

 

As a whole, people are taking better care of their credit—or, at least, are better informed. Most people are aware of the typical credit no-nos like late payments, collections, tax liens, bankruptcies and foreclosures. But there are other, lesser-known things that can have an adverse effect on your credit score, too. And, not every action is created equal—some things hit harder than others.
 

  1. Getting a new cell phone. This process usually includes the provider making a hard inquiry on your credit which drops your score by a few points. This full credit check request will remain on your report for two years. One or two of these in a two-year time period won’t do too much harm. But keep an eye on them! Minimal damage

 
  1. Not paying your parking tickets. If you’ve received parking tickets, be sure you pay them on time. Depending on where you live, unpaid parking tickets may get referred to collection agencies. Having an unpaid account go to collections will drastically reduce your credit score. This goes for utility bills and library fees, too. Substantial damage

 
  1. Using a business credit card. If you use a business credit card for expenses, it more than likely carries your personal guarantee—just like all the other cards in your wallet. That means your credit will be affected if your company doesn’t pay the bill. Keep that in mind if you’re not great at turning in your expense reports on time! Moderate damage

 
  1. Asking for a credit limit increase. This one’s tough. On one hand, it could help your credit score in the long run (especially if you pay off your debt every month) but, in the short-term, it could lower your score when they look into your credit. Since each financial institution is different, it’s a good idea to call and ask if they will initiate a hard or soft inquiry with this request. A soft inquiry doesn’t affect your score at all. Minimal damage

 
  1. Closing an unused credit card. It may seem counterintuitive, but this is actually a bad idea. It increases your utilization rate (the percentage of your available credit that you’re currently using) which can lower your credit score. Always keep your oldest card open—the long credit history is a plus! Substantial damage

 
  1. Not using your credit cards. The problem here is that the account may be closed by the issuer due to inactivity—which would result in your utilization rate going down. Unfortunately, if you’re not using the account, you may not realize your credit score has taken a hit until it’s too late. Moderate damage

 
  1. Using a debit card to rent a car. Rental agencies prefer you use a credit card but, since not all their customers have access to a credit card, they usually have options for using a debit card. However, it’s complicated and, worse, they usually pull your credit with this payment option. And, you guessed it, this results in a hard inquiry which will decrease your score by a few points. Minimal damage

 
  1. Opening an account at a new financial institution. Whether you’ve had a bad experience or you just want something different, your new account may require an inquiry into your credit. Before you apply, ask what their process is. Minimal damage

 
  1. Delinquent child support. If you’re not making these payments, you could be subject to collections and possibly a court judgement against you—both of which are severely detrimental to your credit score. Substantial damage

 
  1. Disputing a credit card bill. If you’re in the middle of a credit dispute, your credit score may take a hit. Be aware of this risk. Moderate damage

 
  1. Financing a major purchase. You’ve seen the offers—0% interest for a certain number of months. Whether you’re buying furniture, getting braces for your 12-year-old or making some other purchase, financing it will lower your credit score for two reasons. 1) This type of loan is often viewed as a “last-resort” loan which could make you seem like a higher credit risk. 2) The loan is essentially a line of credit. If you borrow $3,000 to pay for braces, your credit report will show a line of credit for $3,000 that is totally maxed out. Thus, negatively affecting your utilization rate. Substantial damage

 

Understanding what goes into your credit score and how it’s affected by different actions will help you plan your financial strategy. Are you trying to get out of debt? Or, just trying to be more financially aware and purposeful about your money? Whatever the reason, a quick meeting with a financial advisor can be eye opening—and may help resuscitate a falling credit score!

 

Mountain America Credit Union is here to help. Our advisors are available to help you decide which path to take and how to achieve your financial dreams. Schedule an appointment today.

 

This is the first installment in our credit series. Check back to see what else we have in store.

 
 

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