We all know we're supposed to pay our bills on time and not max out our available credit—the two major factors that go into calculating our credit scores. Yet, there are other, smaller factors many people aren't aware of that can also have an impact on our scores.
- Failing to pay even small bills could lower your credit score.
- Too many recent applications for credit could also be a negative.
- If you have a business credit card and are the primary account holder, it can also show up on your personal credit report.
1. Small Unpaid Debts
Some people pay their mortgage, credit card, and car loan bills with unflappable consistency, yet neglect their smaller debts. They may feel these debts are less important or that they will just go away if ignored. But very often they won't. Municipalities were once known to report unpaid parking tickets and even library fines to credit bureaus, for example, although that practice has largely been curtailed. Still, other unpaid debts, however trivial they may seem, can weigh down your credit score.
2. Utility Bills
Your electricity or gas bill is not a loan, but failing to pay it can hurt your credit score. While utility companies don't normally report a customer's payment history, if your account becomes delinquent and they turn it over to a collection agency, that will show up on your credit report as a serious negative.
3. Too Many Recent Credit Applications
It can be tempting to sign up for new credit cards that offer an attractive bonus or other perks. Banks may offer tens of thousands of points or airline miles, while retailers provide in-store discounts when you apply for their credit card. A single application may have little effect, but too many in a short time period can lower your credit score. So limit your number of applications for credit, especially if you are getting ready to shop for a home, car, or student loan, where a strong credit score could be extra important in getting approved and landing a good interest rate.
4. Long-Term Loan Shopping
To allow consumers to shop around for the best rates on auto, home, and other loans, FICO (the best-known credit scoring system) doesn't penalize people whose credit reports show multiple credit inquiries in a short period of time. Various FICO formulas discount multiple inquiries within either 14 or 45 days. However, continuing to shop around for a loan over several months will fall outside of this safe harbor and likely lower your score.
5. Business Credit Cards
Do you have a credit card for your business? If you are the primary account holder on the card, most banks will hold you personally responsible for any debts you rack up with it, as well as reporting your payment history to the credit bureaus. Late payments or unpaid debts will affect your personal credit, so be sure to use any business cards as judiciously as your personal ones.
6. Mistakes You Didn't Make
Incorrect information in your credit history can hurt your score. People with common names, for example, 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 consumers are encouraged to check their credit reports at least annually and dispute any mistakes they find. You can obtain free credit reports at least once a year from each of the three major credit bureaus—Equifax, Experian, and TransUnion—through the official website, AnnualCreditReport.com.
It's a good idea to review your credit reports from the three major credit bureaus at least once a year to check for errors or missing accounts you'd like to see listed. One reason to check all three reports is that they sometimes contain different information, in part because some of your creditors may report to one bureau but not the others.
7. Missing Accounts
Sometimes the problem isn't what's in your credit report but what's not in it. Some of your creditors may not supply information to any of the credit bureaus. That could mean a lower credit score if, for example, a credit card you have a pristine record of paying off on time isn't included in your report, while another, where you've missed a payment or two, is.
If you find any such accounts have been left off your report, FICO suggests you either "ask your creditors to begin reporting your credit information to credit bureaus" or "consider moving your account to a different creditor who does report regularly."
Is FICO the Only Credit Score?
No, FICO is a pioneer and leader in credit scoring but not the only company that does it. VantageScore, launched in 2006 by the three major credit bureaus, is also in wide use. Both FICO and VantageScore have multiple scoring models for different purposes, so prospective lenders and others have a variety of scores to choose from and any given consumer is likely to have not just one credit score but several of them.
What Can You Do if You Find an Error in Your Credit Report?
You have a right to dispute any information in your credit report that you believe to be incorrect, and the credit bureau is required by law to investigate the matter and get back to you with its findings. All three of the major credit bureaus outline the steps you need to follow on their websites.
How Can You Find Out Your Credit Score?
While you can purchase your credit score from credit bureaus and credit scoring companies, you can also obtain free credit scores from a number of sources. Some banks and credit card companies, for example, will provide scores to their customers. There are also some reputable websites for this purpose. Bear in mind that you may have multiple credit scores and the one you receive for free may not be identical to any others.
The Bottom Line
While paying bills in a timely fashion and not using too much credit at any given time are the two most heavily weighted factors in your credit report (commonly accounting for 65% of your score between them) if you want to maintain a high credit score, you should also pay attention to some other factors. Those include not applying for too much new credit and not allowing any damaging errors you find on you credit reports to go uncorrected.