There are several ways to ruin your credit score, and if you're interested in raising your rating, it's important that you understand these factors. A good credit score is especially important if you're looking to qualify for a mortgage loan, but it can also influence other areas of your life. Some employers run credit checks on job candidates, and some insurance companies use credit scores to determine rates. Therefore, you need to keep your credit in good shape. Here are seven little-known ways to ruin your credit score.
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1. High Credit Card Balances
Carrying a high credit card balance or maxing out your credit cards are two ways to ruin your credit score. It doesn't matter whether you always pay your bills on time each month. The amount you owe creditors make up 30% of your credit score. Therefore, too much consumer debt can reduce your overall rating.
2. Cosigning a Loan
Cosigning a loan helps another person, but it also puts your credit score at risk. As a cosigner, you assume responsibility for a debt if the primary borrower is unable to pay. Since this account will appear on your credit report, any negative activity associated with the account can bring down your credit score.
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3. Constantly Applying for Store Credit Cards
Applying for a store credit card at checkout might knock 10% or 15% off your purchase. However, each application for new credit results in a credit report inquiry. And each inquiry can reduce your credit score by 10 to 20 points. Therefore, only apply for new credit when absolutely necessary, and spread out your credit applications.
4. Defaulting on Your Cell Phone Bill
It isn’t a loan or a credit card, but your cell phone bill can have a tremendous impact on your credit score. Typically, cell phone providers don't report to the credit bureaus monthly. However, if you default on your bill or breach your cell phone contract, your provider will report this negative activity to the credit bureaus.
5. Not Paying Your Taxes
If you don't pay your federal or state taxes, a tax lien can appear on your credit report. Liens can remain on your report indefinitely and drive down your credit score. For this matter, it is important that you settle tax bills before the state or federal government takes action. Contact the appropriate agency and set up a payment plan if you are unable to pay your taxes in full.
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6. Settling Debt
Debt settlement may seem like a doable solution to high debt. Unfortunately, settling debt for less than you owe can have a negative impact on your credit score. Your creditor might report that the debt was settled for less than the full amount, and a charge-off could appear on your credit report.
7. Library Fines
Depending on where you live, your city government may take legal action to collect unpaid library fines. This is more common when the city is struggling financially and needs to generate revenue. However, if you fail to appear in court, or if you don’t pay the fine, unpaid library fines might result in a judgment or collection account.
It’s important that you take your credit score and history seriously. Bad credit can hinder any plans to purchase a home, and it might impact whether you’re able to acquire certain types of employment. Once you know the factors that influence your score, you can make better credit decisions. Can you think of other little-known ways to ruin your credit score?
