A seemingly small stumble can cause your credit score to plummet.
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. Closing credit cards
Closing a credit card account sounds smart, but it actually can hurt your credit score. Closing an account affects what’s known as your credit utilization ratio. That is 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 least of your available credit that you’re using — the better your credit score will be. Closing a credit card account you’re not using decreases your available credit, however. That increases your credit utilization ratio, hurting your credit score.
3. 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 the rent, meet with your landlord and propose an alternative payment plan until you’re caught up. That way, you can salvage your good name and credit.
4. Defaulting on recurring bills
If you are even slightly past due on a bill from a cellphone or utility company or other provider 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.
5. 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.
6. Outstanding medical bills
If you’re having trouble paying medical bills, make sure you tend to the matter promptly. 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.
Due to credit industry changes announced several years ago, medical debts are reported only after a 180-day waiting period designed to allow enough time for insurance payments to be applied. And in general, credit-reporting agencies are placing less weight on outstanding medical debt. Still, tending to medical bills promptly can help you avoid a credit blemish in the first place.
7. 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:
“People tend to have more credit today and shop for new credit more frequently than ever. FICO Scores reflect this reality. However, research shows that opening several new credit accounts in a short period of time represents greater risk — especially for people who don’t have a long credit history.”
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.