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The FICO credit score equation might be a black box, but there have been thousands of articles written about what you should and shouldn’t do when it comes to your credit score.Most of them are pretty obvious—pay your credit card bills on time, don’t apply for a lot of credit, and keep your nose clean. There are, however, a lot of weird ways you can hurt your score without you even realising it.
Closing Credit Cards. This has become less “strange” in recent years, but closing your credit cards can hurt your score. What seems like simple financial housecleaning actually affects a variety of factors that go into your credit score.
When you close a card, your credit limit drops, which increases your credit utilization (bad). If that card is older than most of the other cards you have, the average age of existing accounts will also fall (bad). These are not as bad as an account in collections, but they could mean the difference between a good credit score and a bad one.
Not Filling Out A Moving Form. When you move, it’s often important to report your change of address to the United States Postal Service or you risk missing important mailings like credit card and utility bills. The last thing you want to do is be behind on payments because that will be reported to the credit bureaus.
Some credit card companies will report you as soon as you are 30 days late. While you’re at it, be sure to hold your mail when you go away. You don’t want someone stealing your mail and your identity.
Asking Banker to Check Score. If you have friends who work at banks, especially if they are in lending, you might be tempted to ask them to check your credit score for free. Rather than jump through the hoops of free credit score companies or paying for it yourself, it might seem harmless to ask a friend to look it up.
Besides probably being misuse of company resources, this will hurt your credit score because that small favour will result in a hard inquiry on your report. When you look up your own score, the credit bureaus treat it as a soft inquiry because you are asking about yourself. When you ask your bank, all the bureau see is a bank requesting your score, as if you had applied for a loan.
Not Paying Library Fines. Years ago, owing the library a few dollars wasn’t a big deal. Today, with local budgets in a pinch, everyone is trying to find ways to make more money and fund valuable community services. This means that some libraries are sending even the most trivial of debts over to collection agencies. Those agencies tack on their own fees and penalties, report the debt to the bureaus, and that can have a devastating effect on your credit.
Unpaid Parking or Speeding Tickets. Did you get a parking ticket in another state? What about a speeding ticket or other citation? Since citations are considered debts to the county and governments are not in the business of ignoring debts of any kind, this will almost always be turned over to a collections agency. That agency will tack on penalties and fees, report it to the bureau, and, much like unpaid library fines, this will be extremely painful for your credit score.
Pay Less Than Owed. Let’s say you already have a past due on your report and you want to get the debt off your back, so you agree to pay for 75 per cent of the debt. That actually hurts your score because the balance that’s left for what you don’t pay will be reported as a new charge off on your credit report.
You can prevent this when you negotiate with the debt holder, but if you fail to do so, most will report the charge off. The debt will be settled, but the impact on your credit report will persist. It does seem counter intuitive, to be punished after paying, but that’s how it works.
Cards With No Limit. Some credit cards come with absolutely no listed limit, which at first may seem like a good thing. In reality, those credit card companies aren’t reporting a credit limit to the credit bureaus and so the bureaus assumed it was $0 for their calculations.
This would make your credit utilization artificially higher, which hurts your score. If the only credit card you had was one of these limitless credit cards, your credit utilization would be infinite.
Jim Wang writes about personal finance at Bargaineering.com. When he’s not tackling money issues, he’s usually looking forward to his next vacation and writing about it at Wanderlust Journey.
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