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13 Small Missteps That Can Wreak Havoc on Your Credit

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You’ve spent months or years building up your credit record. One day, you decide to retrieve your FICO score, only to discover it has taken a tumble, and the culprit is a seemingly small misstep on your part.

This happened to me a few years back because I misplaced a bill for a whopping $12.70 that ended up being reported to the credit bureaus. Worst of all, the problem stemmed from a charge through automatic billing on a credit card I longer used. Result: an 80-point decrease and several months of regret. My credit score has rebounded since then, but thinking about this small oversight still haunts me.

Here are some additional missteps to watch for if you want to preserve your FICO score:

1. Car Rental Reservations

Planning to rent a car? If you use a debit card to make the reservation, the rental car company may require a credit screening, which can ding your credit score. Here’s a better option: Confirm the reservation with your credit card to avoid the unnecessary credit inquiry and settle the final bill with your debit card upon returning the vehicle.

2. Past-Due Rent Payments

Paying rent on your own time frame may not immediately earn you an eviction notice. But that doesn’t mean the landlord won’t report your delinquency to each of the three credit bureaus. My advice: If you’re having trouble with rent, meet with the landlord and propose an alternative payment plan until you’re caught up and salvage your good name and credit rating.

3. Late Library Materials

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. Get them in on time. And if you lose them, ‘fess up and pay the fees. Otherwise, you’ll take a hit to your wallet in the form of fines and, potentially, a lower credit score. My local library assesses a fee of $0.25 per day for outstanding items. Once the account reaches $25, an additional fine of $7.95 is tacked on, and the entire account is forwarded to a collection agency.

4. Outstanding Medical Bills

We’ve reporting on the option of making payments to ease the financial burden of major medical bills. But if you sign up and don’t hold up your end of the bargain, expect to receive a call from a collection agency. Promptly tending to the matter bolsters your chances that the payment privileges will be reinstated. However, muting the ringer or sending the calls to voice mail will eventually result in a blemish, in the form of a collection account, to your credit report. Those marks stick around for at least seven years.

5. Delinquent Tax Obligations

Did you receive a hefty bill from Uncle Sam’s headquarters or the local tax collector 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.

6. Defaulting on Recurring Bills

Cellphone, utility and other providers of recurring services have a tendency to go above and beyond the call of duty to collect on accounts that are slightly past due. And if you test the limits, chances are you’ll receive several notices before services are terminated. But when they’ve had enough, expect to be turned over to collections and subsequently reported to the three credit bureaus if you ignore the correspondence and fail to settle your outstanding obligations.

7. Breached Gym Membership Contracts

Tired of forking over your hard-earned cash each month for a gym membership you aren’t using? Understandable. But walking away without properly closing the account could cost you in the form of early termination penalties and a damaged credit score.

8. Unpaid Traffic Citations

Most of us are well aware of the consequences associated with ignoring tickets issued by law enforcement. But what about those random tickets issued by parking services at the local university or the downtown street patrol? Ignoring them and failing to pay probably won’t land you in the slammer, but you may be taken aback when the amount plus a host of fees shows up as a collection in your credit profile.

9. Closing Credit Cards

Now that your credit is in stellar condition, you’ve decided to cancel all the credit cards with zero balances. Or maybe your credit card issuer closed the account because of inactivity? The effect on your credit score may not be pretty because you lose a portion of your available credit, which can increase your credit utilization ratio. And closing credit cards with outstanding balances won’t help you because it doesn’t make the debt magically disappear from your credit report.

10. Too Many Credit Card Applications

At the checkout counter, you’re offered a credit card that can save you a decent amount of cash on the purchase. And did I mention that you happen to be at one of your favorite department stores? You’re hooked, but it’s best to proceed with caution because 10% of your FICO score is determined by how you shop for credit. Says MyFICO:

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.

The impact of rate shopping, or applying for mortgage or auto loans within a specified window, isn’t severe. But applications for credit that are denied will still show up as inquiries on your credit profile.

11. Inadequate Credit Mix

If you’re looking to establish or rebuild your credit, it may be necessary to apply for a credit card unless you plan to go another route. (See “7 Ways to Build Your Credit Score Without a Credit Card“). But only seeking a single form of credit could have a modest impact because credit mix accounts for 10% of your score.

12. In-House Zero-Interest Financing

Strapped for cash but in desperate need of that new mattress or laptop? It may be tempting to take advantage of the financing opportunity, but if the credit line is only equal to the total purchase amount, be prepared for a spike in your debt-to-available-credit ratio. Simply put, your credit score will take a tumble because 30% of your credit score is calculated by the amount owed to creditors.

13. Maxed-Out Credit Cards

Have you ever swiped your magic plastic to cover an expense, knowing full well it was maxed out? Chances are you incurred a penalty and a decrease in your credit score because of an inflated utilization ratio.

It simply doesn’t pay to take chances with outstanding obligations. Play by the rules, and you’ll save yourself fees, headaches and time associated with rebuilding your credit score.

This post originally appeared on Money Talks News.

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