Monday, March 9, 2015

Surprising Ways to Sabotage Your Credit Score

Remember those library books you keep meaning to bring back? Well, they may be costing you, and not just the small fine the library charges. In fact, they may be costing you a shot at a new car, your own house or even some job opportunities. Those overdue library books just may hit you where it hurts -- in your credit score.

Our credit score is more than a joke in commercials with guitar-toting pirates singing about "free credit report dot com" while serving sandwiches to tourists in T-shirts. "Your credit score is your 'permanent transcript,' in many ways more important than your GPA," said Peter J. Nigro, Sarksian Chair at Bryant University College of Business. "The information stays on record for seven years and is critically important to all Americans," Nigro said. After all, those three little digits are actually the key to getting some of the things we really want out of life -- like a car loan, a cell phone, an apartment or even a good rate on insurance.

We all know we can hurt our credit score by defaulting on a loan, declaring bankruptcy or not paying our credit card bills. But what about those library books? Here's the scoop, along with some other surprising ways you can sabotage your credit score:

  • Overdue library books. Any type of late payment can result in a hit on your credit score. Though the library itself may not penalize you, overdue notices that go overlooked may result in the fine being sent to a collection agency, which will notify the credit bureaus. If this happens, that old copy of Moby Dick may end up on your credit report for seven years.
  • Closing an account. Paying off an account and closing it is a good thing, right? Not exactly. "Even if you have paid off your credit card, closing the account can harm your credit score," said John Heath, directing attorney at Lexington Law. "Any good credit you may have accumulated with that credit card will be taken out, raising your credit utilization ratio."
  • Ignoring traffic tickets. Ignoring traffic tickets won't make them go away. "In the old days, if you got a traffic ticket in a city you were just passing through, you might get away with ignoring it," Howard Dvorkin, CPA and chairman of debt.com, said. "Not today. The city or county that issued the ticket can submit it to a collections agency or one of the three main credit bureaus. Once that happens, your credit score hits the brakes."
  • Buying a new cell phone plan. Many major carriers check your credit before handing over that new iPhone -- and for every credit check, a hard inquiry is placed on your file that lowers your credit score. The same goes for every credit card you apply for, even if you don't use it (or get it at all!).
  • Never carrying a credit card balance. Surprise! Having nothing at all on an opened credit card may be more harmful to your score than having a high balance. The best strategy for building credit is to make a small purchase each month and carry it into the next cycle.
  • Reneging on a gym membership. If you forget your resolutions by February, you better not sign a contract. Most major gyms report missed payments to the major credit bureaus.
One safe resolution? Vow to monitor your own credit rating at least once a year. You have the right to contact each of the "biggies" (Equifax, Experian and TransUnion) annually to request a copy of the report -- and check out what's influencing your score.

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