5 weird things that damage your credit
Common sense dictates that your credit scores will take a hit if you don't pay your bills. But what about getting a parking ticket?
By Bethy Hardeman, U.S. News & World Report
Little things that can add up
We've all heard the typical advice for keeping good credit:
- · Pay your bills on time
- · Don't open a bunch of credit cards at once
- · Don't file for bankruptcy
Those we've got in the bag. But there are a lot of lesser-known actions that can affect your credit, too. In fact, there are some that are just downright strange. And not knowing about them could get you into trouble, financially speaking.
So here's a rundown of the top five strange things that could damage your credit.
So you just moved into a new place and can't wait to get your new cable hook-up? Be warned: Some high-speed Internet and cable companies will run a hard inquiry on your credit when you sign up for their service. A hard inquiry typically occurs when you apply for credit – like a credit card or home loan. This type of inquiry negatively impacts your credit score, but usually only by a little. Many hard inquiries at once can really ding your credit – unless they're a result of shopping for loan rates.
Fortunately, any company or business that performs a hard inquiry on your credit must first get your permission, so this shouldn't come as a surprise.
- Using a debit card to rent a car
Most rental agencies require you pay your deposit with a credit card. However, some will agree to accept a debit card if you'll allow them to perform a credit check on you, which will result in a hard inquiry. Just like your cable company, rental agencies must get your permission in order to do this.
Some rental car companies are upfront about this practice. Thrifty, for instance, lists a credit check as one of the things to know about renting a car with a debit card. When you're choosing your rental car company, ask if they'll perform a credit check so that you'll be prepared if you plan to pay with your debit card.
- Not using your credit cards
Carrying a lot of credit card debt is generally bad for your credit score. But not using your credit cards at all can also be detrimental. Some credit card issuers will mark your credit cards "inactive" after a certain period of time, and they may even close the credit card account.
When this happens, it will reduce your overall number of accounts and could also affect your credit utilization rate, which is the ratio of your total credit card balances to your total credit limits. Since your inactive card's credit limit will no longer factor into your overall utilization, that rate could be inflated. And, in general, the higher your credit utilization rate, the lower your score.
- Financing the purchase of your new bedroom suite
You've probably seen the offers: "0 percent financing for the first 12 months on a new couch!" Sounds great – buy a couch now, pay much, much later. But this great deal is usually not-so-great for your credit. Here's why: A financing plan like this is usually considered a "last-resort" loan by creditors assessing your creditworthiness. You could look like a higher credit risk, just because you wanted a deal on a couch.
Your credit could also suffer from the addition of a high balance loan on your credit report. This goes back to your credit utilization rate – the furniture loan is essentially maxed out (since you haven't made a payment), which will increase your utilization rate.
- Not paying that parking ticket
So you forgot about that parking ticket you got while visiting your friend in the city – no big deal, right? Wrong. An unpaid parking ticket or even a library fine could eventually be turned over to a collections agency. Some cities – such as Chicago, Miami and New York – are turning unpaid parking tickets and library fines over to private collections agencies.
A collections account is a derogatory mark on your credit that can do significant damage to your credit score. If you know you have unpaid fines, pay them as soon as possible so you won't be surprised by a collections account down the road.