We all know to pay our bills on time and carry as little debt as possible, and most of the time, that is all that matters in your credit score. Yet, there are other, smaller factors that many people aren't aware of that can cause your score to suffer. (For related reading, see Consumer Credit Report: What's On It.)
Small Unpaid Private Debts
Many people pay their mortgage, credit card and utility bills with unflappable consistency, yet neglect smaller debts. They may feel that these debts are illegitimate or that they will just go away if ignored. For example, municipalities have been known to report unpaid parking tickets and even library fines to credit bureaus. Unfortunately, any unpaid debt can weigh down your credit score.
You might not think of the IRS as an agency that reports to credit bureaus, but Uncle Sam figured out long ago how to use your credit history as leverage. In fact, these records remain in your credit history for 15 years; even longer than a bankruptcy. If you have an unpaid tax lien, paying it off will certainly help your credit score, but it can't undo all the damage done by having there in the first place.
Your electricity bill or gas bill is not a loan, but failing to pay it will hurt your credit score. While these companies won't normally report their customer's payment history, they will report delinquent accounts much more quickly than other institutions, so be careful.
Too Many Recent Credit Applications
It can be tempting to sign up for various credit cards that offer some bonus for your business. Banks can offer tens of thousands of points or miles, while retailers grant in-store discounts when you apply for their credit card. By themselves, these applications have an insignificant effect, but too many credit checks in too short of a time period can lower your credit score. To avoid this problem, limit the number of applications for credit, especially when you are shopping for a home, car or student loan. (To learn more, check out 9 Reasons To Say "No" To Credit.)
Long-Term Loan Shopping
Consumers may know that too many credit inquiries will lower their credit score. Nevertheless, to allow consumers to shop around for the best rates on automobile, student and home loans, the FICO will not penalize borrowers who have multiple credit checks in a short period of time. Various FICO formulas negate multiple inquiries with either 14 or 45 days. Therefore, continuing to shop around for a loan over several months will fall outside of this safe harbor and will lower your score.
Business Credit Cards
Do you have a credit card in the name of your business? Nevertheless, almost all banks will still hold you personally responsible for your debts. Furthermore, your payment history is reported to the credit bureaus. Therefore, any late payments or unpaid debts in the name of your business will affect your personal credit, so long as you are the primary account holder on a business card.
Any incorrect information in your credit history can hurt your score. For example, people with common names frequently find other people's information in their file. In other cases, typos and clerical errors result in adverse information affecting your score. This is one of the reasons why consumers are encouraged to complete soft inquires at least once a year and dispute any mistakes they find.
The Bottom Line
By paying close attention to the decisions they make, consumers can avoid taking actions that seem harmless, but can really hurt their credit. (For additional reading, see The Importance Of Your Credit Rating.)