7 Strange Factors that Can Hurt Your Credit Score Without You Knowing It
by Sylvia Burleigh
When it came time to apply for our first loan for a single-family home 20 years ago, it came as a complete shock that we had an outstanding collection debt from a store we hadn’t frequented in five years. The outstanding $90 purchase was, of course, made in another state in which we both no longer lived. To correct the error with both the collection agency and the credit bureau we simply just paid it to be eligible for our first FHA loan. No harm, no foul. But these days certain factors can affect your creditworthiness without you even knowing it. Often what appears as a small factor to a consumer can quickly become a collection issue and remain on a credit report for seven years. Here’s how to avoid these seven factors before they become a major credit repair issue:
- Move much. I had a friend who told me once that growing up, she and her family moved forty times within a fifteen year period. No, they weren’t military but it does bring up a good point. Even if you’re moving across town, it’s a good idea to fill out a change of address form with the US Postal office. This can be easily accomplished online for a $1 fee. Filling out this form will help you keep track of your bills, citations even notices without that haunting fear of a collection “ding” hitting your credit files.
- Overdue late fees on video rentals. If you think that charge for a never-returned video can’t arrive at a collection agency and won’t be reported to the credit bureaus, think again. While collection laws vary according to state, some states do insist on notifying consumers before a collection notice is placed in their credit file. The video rental company should notify their customers before they turn overdue or late accounts over to collection agencies; however, once in the hands of a collection agent they have the authority to place collection notices with the big three credit bureaus. You really do not want a surprise when you attempt to buy a house or a car, and if it’s a matter of principle – well, is $16 and a lower credit rating really worth making a point over late fees?
- Parking or speeding tickets. Unpaid parking or speeding tickets can seriously damage your credit score. The fine is considered a debt by the county, whether it’s issued within the state you reside or not, and if the citation remains unpaid it could be turned over to a collection agency. The collection agency in turn will report it to the credit bureaus where it can impact your credit score. Once unpaid traffic violations reach collections, even borrowers with high credit scores could potentially see a 100-point decline in their score. Potential credit issuers see collection accounts as a negative predictor of your future credit risk. If you should receive a citation in the mail, you can fight the citation or just pay the fine and avoid it becoming part of your driving record. In either case, take a quick and decisive approach to resolving the matter and avoid any follow-up letters if possible.
- Overdue books. This may fall under the category above, but local governments are feeling the squeeze of tighter budgets and may turn over unpaid library fines to private collection agencies. These collection agencies may also add late charges or other interest to the fine to pressure consumers into paying on time. While you may not intentionally forget to pay that $3 dollar library fine, it can easily become a problem.
- Comparison shopping for rates in a short period of time. Every time you apply for a loan, a credit issuer reviews your credit report and this review counts as an “inquiry”, which remains on your credit report for two years. If your credit report is hit with a lot of “inquiries” within a short period of time, it appears to the credit agency as if your opening a few too many lines of credit. But if you complete your shopping for the best rates within thirty days, this counts as a single “inquiry.” The only credit report inquires that can lower your credit score are applications for new credit.
- Moving your credit card balances frequently. Consolidating credit card balances from one account to another in an effort to avoid annual fees or higher interest rates, can do more harm than good according to the Privacy Rights Clearinghouse http://www.privacyrights.org/fs/fs6c-CreditScores.htm#5 on Consumer Credit Scores. Closing long-established accounts and opening new accounts can negatively affect your payment history and the percentage of available credit which is 35% and 30% of your credit score, respectively. In one single move, you’ve managed to decrease the amount of available credit, and increase the percentage of credit used.
- Past-due notices from utility companies. The quickest action is often the best solution. Pay utility bills before they get to collections. The most common scenario is when people move, especially out of state. This is so easy to forget in the hectic process of relocation, school and living arrangements. Be sure to always check with your local gas, electric, phone and cable companies to verify that your accounts are paid in full and you’ll be grateful you did when you attempt to open a new line of credit. If you cannot pay your bill, call the utility and inquire about other acceptable payment plans.
One thing is certain, companies, including cable, phone, utilities, and even video rental stores are more willing to work with you to keep a past-due account from going to collections before they actually do. Contacting your creditors is one way to avoid the collection route and maintain your credit score before circumstances require its repair. If you have trouble monitoring your credit reports on a regular basis, consider a credit monitoring service.
Sources:
http://www.bankrate.com/finance/debt/utility-charge-off-could-hurt-credit-score.aspx
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