10 Really Surprising Things That Can Hurt Your Credit Score
Most people know the typical credit no-nos:
Don’t make a late payment. Don’t allow an account to go into collections. Avoid tax liens, bankruptcies and foreclosures.
And of course, paying off credit card debt should be one of your top financial priorities.
But there are also lesser-known ways you could unintentionally damage your credit score.
Here are ten actions—from least to most harmful—that could make your number take a plunge.
10. Renting a Car With a Debit Card
While many rental agencies require that you pay your deposit with a credit card, some will accept your debit card instead. However, agencies typically have a clause in the contract stating that they can pull your credit report if you choose to pay with a debit card. That credit check causes a hard inquiry, which can ding your score a few points.
A hard inquiry is when a lender, credit card issuer or other financial institution requests a credit check in order to decide whether or not to extend a line of credit to you, such as a credit card or home loan. Each hard inquiry usually drops your credit score by a few points and will remain on your credit report for two years. The other kind of inquiry, soft inquiries, are made by people who don’t intend to take action, such as your landlord checking your credit, and won’t have any effect on your credit score.
9. Requesting a Credit Limit Increase
While it could be a good idea to ask for a limit increase on your credit card (and might help your credit score in the long run), it could also damage your score in the short-term if it initiates a hard credit inquiry. When calling to request a limit increase, make sure to ask first if it will initiate a hard or soft inquiry on your credit report. Each institution handles it differently.
8. Applying for an Account at a Credit Union
With lots of people moving their money from big banks to smaller credit unions, it’s important to know that opening that new account could cause a hard inquiry. Before applying, ask whether or not opening a new account will involve a hard inquiry into your credit report. The inquiry isn’t unique to credit unions—most institutions conduct a hard inquiry when you open a new account.
(For more on whether moving to a credit union could be a good move for you, read this.)
7. Getting a New Cell Phone
Opening a new mobile account could also initiate a hard credit inquiry. Although each hard inquiry shouldn’t drop your score too drastically, you’ll want to be careful not to initiate too many in too short a time, or else these little actions can really add up.
6. Using a Business Credit Card
It used to be that business credit card activities didn’t show up on your credit report, but that’s no longer true. These days, all major credit card issuers require that you provide a “personal guarantee” when applying for a business credit card. That means you’ll essentially be a co-signer with your company on the card. Your company may be responsible for paying the balance, but your credit will take a hit if you fail to keep up with the paperwork or they default on a payment. If you work for a small, young business and need a business card for work expenses, first ask if you’ll have to provide a personal guarantee. If the answer is yes, you may instead want to use your own credit for business expenses and fill out expense forms.
5. Not Using Your Credit Cards
If you have a credit card account in good standing that has zero activity over a long period of time, your credit card issuer could choose to close your account due to inactivity. If you’re not using it, you may not notice that your account has been closed until your credit takes a hit. The reason this would hurt your score is that it would be bad for your credit utilization ratio. For more on what that is and why it matters, check this out.
4. Disputing a Credit Card Bill
If you’re in the midst of a credit dispute, some credit score algorithms may not take the disputed credit line into account when calculating your score, so a credit check done on your profile during that time could cause your score to be lower than it would be if the disputed account were included. Why? Again, by lowering your total “available” credit line, your credit utilization ratio would change, and not for the better.
3. Using a Finance Plan for a Major Purchase
A small, local furniture retailer may offer to let you finance a purchase … but if you accept the loan, it can hurt your credit because it’s considered a “last-resort” loan, which may make you look like a higher credit risk. Additionally, your credit could suffer from the high balance being reported on your credit.
For instance, say you apply for credit to finance a $1,400 couch. You get a great offer: no payments and 0% interest for 18 months. You take a few months to start making payments, and in the interim you have a new line of credit on your credit report. The new line will essentially be maxed out, because the limit will be $1,400 and your balance will be $1,400. Your credit utilization rate, therefore, would be negatively affected.
2. Closing an Old Credit Card Account
It may seem like a good idea to get rid of an old credit card, but it can decrease the length of your credit history and increase your credit utilization rate, both of which can lower your credit score. In particular, we generally suggest you avoid closing your oldest credit card, since that long credit history is an asset you’ll want to hang on to.
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1. Sitting on Unpaid Parking Tickets
Some jurisdictions turn over unpaid parking tickets to collections agencies. Having an account in collections severely decreases your credit score. More and more municipalities have been sending unpaid parking ticket information to collection agencies recently, in an effort to close budget gaps.
This year, Chicago and the suburbs of Washington, D.C. have started pursuing unpaid tickets this way. New York City, which has nearly $700 million in overdue parking fines, does this, too. To find out if your city gives unpaid tickets to collections agencies, search on its .gov homepage or call the Department of Revenue. Keep in mind that this includes parking tickets you may have incurred as an out-of-state visitor!
The Bottom Line
These rules governing your credit change from time to time. Something that didn’t affect your credit several years ago could now factor into your profile due to recent government legislation. Keep up-to-date on which actions can have negative credit impacts by monitoring your credit score at CreditKarma.com.
Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 3 million consumers realize the everyday cost savings of having a good credit score.
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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.