A seemingly small stumble -- such as forgetting to return library books -- can cause your credit score to plummet.
BY ALLISON MARTIN
ON FEBRUARY 1, 2017
PHOTO BY DEAN DROBOT / SHUTTERSTOCK.COM
The next time you check your FICO score, you might discover it has taken a tumble because of a seemingly small mishap 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 no longer used.
The result was an 80-point decrease in my credit score and several months of regret. My credit score has rebounded since then, but thinking about this small oversight still haunts me.
With my precautionary tale in mind, here are some other types of mishaps that can damage 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 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 and settle the final bill with your debit card upon returning the vehicle.
2. Past-due rent payments
Fail to pay the rent on time, and the landlord might report your delinquency to each of the three credit bureaus.
If you’re having trouble with rent, meet with the landlord and propose an alternative payment plan until you’re caught up. That way, you can salvage your good name and credit rating.
3. Library delinquency
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.
My local library assesses a fee of 25 cents per day for each outstanding item. Once the account reaches $25, an additional fine of $7.95 is tacked on, and the entire account is forwarded to a collection agency.
Get your materials in on time. And if you lose them, fess up and pay the fees. Otherwise, your credit score could take a hit.
4. Outstanding medical bills
If you’re having trouble paying medical bills, there are some steps you can take to ease the financial burden
. But whatever you decide, make sure you promptly tend to the matter. Muting the ringer on the phone or sending calls from collectors to voice mail will eventually result in a blemish — in the form of a collection account — on your credit report. Those marks stick around for at least seven years.
5. Delinquent tax obligations
Did the IRS or the local tax collector send you a hefty bill 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
If you are slightly past due on a bill from cell phone, utility 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 collections and subsequently reported to the three credit bureaus. Don’t ignore correspondence or fail to settle outstanding obligations.
7. 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.
8. Unpaid traffic citations
Most of us are 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 could show up as a collection in your credit profile.
9. Closing credit cards
Closing a credit card account sounds smart, but it can hurt your credit score. Losing a portion of your available credit increases your credit utilization ratio, which accounts for 30 percent of your credit score. An increase in this ratio has a negative effect on your score.
10. Too many credit card applications
Ten percent of your FICO score is determined by how you shop for credit. According to 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.
So, remember that fact the next time you’re offered a 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.
11. Inadequate credit mix
If you’re looking to establish or rebuild your credit, it might 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 opening a single credit card account is likely to have only a modest impact on your score.
The credit mix usually won’t be a key factor in determining your FICO scores — but it will be more important if your credit report does not have a lot of other information on which to base a score.
12. In-house zero-interest financing
Strapped for cash but in desperate need of that new mattress or laptop? It might be tempting to take advantage of zero-interest financing if it’s offered by the seller. 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 percent of your FICO score is calculated by the amount owed to creditors.