6 Small Things That Can Wreck Your Credit Score
Figuring out how your credit score works can be a little tricky. This is especially the case if you’re not aware of all the ways you can harm it, especially the small ways that can still impact your credit score in a big way. Your credit report not only contains your credit card activity, but also many different financial activities. Here are five small things that can hurt your credit score.
1. Cancelling a Credit Card
When you cancel a credit card account it doesn’t harm your credit score by itself, however it will lower your credit utilization ratio. This ratio determines close to 30% of your credit score. For example, if you own two credit cards that both have a $5,000 limit then that gives you $10,000 in possible credit. If you owe $3,000 then your credit utilization ratio will be 30%, which is a pretty healthy figure. However, if you cancel one of your credit cards this ratio shoots up to 60%, which will make a significant impact on your credit score in a negative way. If you do want to cancel a credit card then ensure that your utilization ratio remains at 30% or below once the account closes.
2. Applying for a New Credit Card
When you are applying for a new credit line, whether it’s an auto loan or for a new credit card, the issuer will place a hard inquiry on your report. If you have too many hard inquiries within your credit report at the same time then it will likely lead to your credit score declining. Your credit score can be dramatically affected if you apply for more than one line of credit in a small time frame. Keep in mind that it’s best to only apply for a credit line when you really need it. Additionally, make sure that you only apply for credit cards that you know you can qualify for otherwise you’ll credit score will be dinged for nothing.
3. Renting a Car Using a Debit Card
If you use a car rental service that allows you to utilize a debit card in order to rent a car then this can affect your credit score. This may seem confusing, as you aren’t paying with credit, however the reason for the ding is that car rental agencies that allow you to use a debit card to rent a car will usually look at your credit report. This will show up as a hard inquiry and will lose you several points on your credit score.
4. Paying for a Large Purchase
If an electronic or furniture store allows you to finance a major purchase like a flat-screen TV or a couch then you should think twice before accepting it. Some store financing may be considered a last-resort loan, which can appear as a credit risk. Additionally, any purchase financing will put a hard inquiry on your credit report. If you want to purchase a large item, but don’t want to pay it all at once then you should consider using a new credit card with 0% APR instead of using store financing.
5. Not Paying a Parking Fine on Time
You may have thought you were getting away with not paying for a parking ticket, however this is not the case when it comes to your credit score. There are many cities that will send their unpaid parking tickets to a collections agency. This will cause your credit score to be severely impacted. Next time you are thinking about not paying that $50 parking fine then keep in mind it may cause you to pay a couple of hundred dollars more on your next loan through an increased interest rate.
6. Ordering New TV Channels
If you just moved to a new home or are simply wanting to add more options to you available TV channels then you should be aware that some cable and Internet companies will put a hard inquiry on your credit report when you apply for their service. Luckily, the impact that this will have on your credit score won’t be very substantial. Additionally, any Internet and cable company should ask your permission before they make the inquiry so it won’t be unexpected.