Most people realize that timely credit card payments can help boost their credit score, while late payments or too much credit utilization can lower it. But credit scoring is complicated, so there are a few actions you may not think about that can negatively impact your score.
Here are four of them that you should be aware of:
Closing a credit card.
“A lot of people are well-meaning and think ‘I don’t need this wallet full of plastic, I’m going to close this account and cut up this card,’” says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling. Closing a credit card can hurt your score because it removes a line of credit and raises your credit utilization ratio (the amount of credit you’re using versus your total available credit). If you want to streamline your finances by closing a credit card, Cunningham suggests closing the card with the smallest limit, as that will impact your credit utilization ratio the least.
Not paying your taxes.
In addition to getting into hot water the with the IRS, not paying your taxes can show up on your credit report, which some people may not realize. All three of the credit bureaus include tax liens on your report. According to Cunningham, “tax liens have the potential to remain on your credit report indefinitely and it’s considered a serious derogatory. Once the lien occurs it’s problematic regardless of what the balance is.”
Applying for too much credit at once.
When you shop for a mortgage or a car loan, the lender pulls your credit report (what’s known as a “hard pull”) and those inquiries appear on your credit history. “You don’t want a lot of inquiries because that’s a red flag to the lender that you’re desperate for credit,” says Cunningham. Fortunately, inquiries within the same 14-day period show us a single inquiry, so try to compare options within that window if you can.
Defaulting on your cell phone bill.
Even small collections issues like an unpaid cell phone bill can lower your score. “If you don’t pay your cell phone bill and it goes to collections you lose your cell phone and you’ve hurt your credit,” says Rod Griffin, director of public education at the credit bureau Experian. Here’s the kicker: paying off a collections doesn’t make it disappear. “Don’t be mistaken into thinking that paying it off will make that activity go away,” says Cunninham. In fact, late payments and collections can remain on your credit report for seven years.
Now that we’ve explored the things can damage your credit, here’s one that doesn’t:
Marrying someone with bad credit. That’s right. Although some people assume that their credit scores merge once they walk down the aisle, the reality is that married couples still maintain their own credit scores independent of one another. Having a spouse with low or no credit may make it more challenging to qualify for a mortgage or other loan, but it doesn’t actually lower your score.
However, that’s not to say that you should obsess over your credit score at the expense of your financial health. Oftentimes, consumers focus on behaviors that may boost their credit score in the short term without creating good long-term financial habits, says Griffin. For instance, keeping a credit card open even though it may tempt you to get into debt again or not checking their credit report because they’re afraid of getting dinged (only hard inquiries impact your credit score, checking your own credit is what’s called a “soft pull”). “Don’t let the number be the sole driver of your decisions,” says Griffin.