Surprising Things That Affect Your Credit

When it comes to your credit score, you’re already aware that late and missed payments can have a negative effect. Length of credit history and how much available credit you’re using also play a role in calculating your overall score.

Still, there are other things that contribute to the final number that aren’t always so clear. Don’t get caught off guard by hidden credit score killers. Here’s a list of some surprising things that can affect your credit:

Miscellaneous Payments

Most people are aware that missing credit card payments have a direct effect on credit scores. But did you know that your score is also determined by almost everything you pay for?

That includes things like:

• utility bills
• municipal debts (court costs, hospital fees)
• unpaid taxes
• unpaid child support
• parking tickets
• bank overdrafts
• library fees
• and more

When these accounts are left unpaid, they often get sent to a collection agency, which reports to the credit bureaus an outstanding debt.

Paying Loans and Closing Accounts

This is often a point of contention for borrowers. Paying off loans and being able to finally close accounts that previously had high balances seems like a good thing. And it is.

However, your credit score is based in part on your overall credit history. If you close a long-held account, it automatically reduces the length of your overall credit, which creates a skewed view of your borrowing habits.

Also, credit bureaus look at both revolving (such as credit cards) and installment (such as mortgage or vehicle) loans. If, for instance, you pay off an auto loan and that’s the only installment loan on your books, your credit will be negatively affected. In this case, there are no other installment loans left to consider when evaluating your strength as a borrower, which affects your ability to get some loans.

While settling a debt saves money in the short term, it also damages your credit score. That’s because the settlement will show up as ‘payment less than owed,’ ‘partial payment,’ or similar terminology.

Along the same lines, inactivity and/or having no credit history at all hurts your score. Lenders aren’t sure why you haven’t been borrowing lately, or why you’ve never borrowed at all. They’ll often surmise it’s due to inability to obtain credit, incarceration, or another adverse reason.

Using Debit Cards

The simple act of using a debit card doesn’t affect your credit score, however, it’s important to be aware of contracts and clauses that could.

For instance, many rental car agencies insert clauses in their rental agreements that if customers pay with a debit card, they automatically authorize the agency to do a credit check. This counts as a ‘hard inquiry,’ which negatively affects your overall credit score.

The same applies when you switch cell phone plans. Regardless of whether you pay with cash or a debit card, many companies will still request credit history to make a decision about your borrowing and payment ability.

Not Exploring All Options

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