Attempting to understand all the factors that influence your credit score can be a tough task. There are plenty of different things that can drop or boost your score. Some of them might be small and others can have a noticeable effect. Here are five surprising things that you might do to hurt your credit score. (For related reading, see: Your Credit Score Is Important, But Why?)
Applying for a New Credit Card
The next time you receive a credit card application in the mail that has an enticing offer you might want to weight the pros and cons. Each time you apply for a new credit card the issuer will perform a hard inquiry on your credit report. They need to make sure that you are responsible enough to pay back the money you charge.
Each time a hard inquiry is performed you will see a two to five point hit on your credit score. While this might not be a lot for someone with a score of 700 or more it can really mean something to someone with a score of 600.
If you do make the decision to apply for the card, make sure you are qualified. If your application gets rejected you are still going to have the hard inquiry on your account. No one wants to have his or her credit score take a hit and not get anything in return.
Closing a Credit Card
The more credit cards that you have, the more credit is available to you. Each time you decide to close a credit card account there will be an increase in your credit utilization ratio, which makes up 30% of your FICO score.
To better this explain let’s assume that you have two credit cards. One of them has a credit limit of $5,000 and has a balance of $2,000. The second card also has a credit limit of $5,000, but has a zero balance. That means you would have a credit utilization ratio of 20% ($2,000/$10,000). Now let’s assume you want to close the second credit card with no balance. If you do that your credit utilization would increase to 40% ($2,000/$5,000). Because it’s important to keep your ratio below 30% you should hold off on closing the credit card until you have paid down more of your balance. (For related reading, see: Should You Close Your Credit Card?)
Failure to Pay Your Library Fine
If you forgot to return a library book on time you might have thought it was no big deal. The very opposite might be true. The collection agency, Unique Management Services, now specializes in collecting late fees from library users. With over 900 library systems in the United States, Canada and England on board, these small fines should not be ignored.
Ignore Your Traffic Tickets
Have you ever received a traffic ticket in the mail because you were caught by a red light camera or mobile speed trap? Just because you think it might be wrong for them to send you a traffic ticket in the mail, doesn’t mean you don’t have to pay it. Both city and state governments have the option to report you to a credit agency and even send any outstanding debts to a collection agency.
It’s also important to remember that just because you might have been issued a ticket when you were out-of-state, you still need to pay it.
Renting a Car With a Debit Card
Most rental car companies require everyone to use a credit card when renting a car. If you get into an accident they want to make sure they are going to be reimbursed for any damages. If a company does allow you to use a debit card there is a good chance that they will pull your credit report, which would cause a hard credit inquiry.
The Bottom Line
Some of these mistakes are fairly minor and will only result in small, temporary reductions in your credit score. No matter what, you should avoid all of these if you are looking to make a big purchase like buying a home.