Thinking of applying for a mortgage any time soon? If so, you’d be well-advised to get your finances in order, and that includes ensuring that your credit score is up to par.
You certainly don’t want to be missing any debt payments, which is an obvious way to pull your credit score down. But there are plenty of not-so-obvious ways that could negatively impact your credit score without you even realizing it. Here are a few surprising things that can put in a ding in your credit score.
1. Having No Loans
This might sound counter-intuitive, right? After all, isn’t the goal to be completely debt-free? While you certainly don’t want to be drowning in debt, having no debt at all might actually not be such a positive thing for your credit score. That’s because your credit score is based on your financial activity, including your ability to keep up with debt payments. But if you have no debt to pay off, the credit bureaus will have nothing to go on in terms of calculating your credit score.
Credit scoring systems tend to boost credit scores for consumers who have a diversified portfolio of debt. Now, this doesn’t mean that you should go out and apply for a bunch of loans, as this can have a negative impact on your credit score. That said, having a few debts on the books can be a good thing for your credit score if you’re keeping up with your payments.
2. Unpaid Child Support
If you are responsible for paying child support, make sure not to miss a payment. Any unpaid child support can be reported to the credit bureaus. If that happens, your credit score will certainly suffer.
3. Unpaid Utility Bills
If you have a habit of missing payments to the gas or electric company, you could suffer a lot more than just having your lights shut off. If the credit bureaus get wind of your missed payments, your credit score could take a dip.
4. Only Spending Cash
There’s nothing wrong with spending cash, especially if you want to keep your credit card utilization down (more on this later). It’s also a great way to avoid increasing your debt. But spending cash exclusively might not actually be a good thing for your credit score.
After a few months of not using a credit card, your credit card issuer could stop reporting your activity to the credit bureaus, which can lower your score. You can effectively prevent this from happening by using your credit card once in a while just to show your credit card company that you’re still active with your credit and are responsible with your payments.
5. Unpaid Parking Tickets
Finding a parking ticket on your dashboard can be incredibly frustrating, but you still have to pay it. If you neglect to pay it or wait too long to deal with it, the municipality in which the ticket was issued will likely get collections after you.
If this happens, you run the risk of such a situation being noted on your credit report, which can then have a negative effect on your credit score. Not only that, but collections accounts can stay on your credit report for years before being dropped off.
6. Closing Old Accounts
Paying off a high credit card balance is a commendable feat, but that doesn’t mean you should necessarily close that account after you’ve reached that goal. Although paying down debt can be a good thing, closing an account might not be. In fact, closing old accounts can reduce your credit history, which is a bad thing for your credit score.
Instead, keep your accounts open, even if you’ve paid them off. And if you think that you’ve got too many accounts, consider closing the newer accounts and leave the older ones open.
7. Requesting a Change on Your Credit Card Terms
Whether you ask your credit card issuer to reduce your interest rate or increase your credit limit, such changes could impact your credit score. That’s because your credit card provider will likely pull your credit report to make sure that such changes are justified according to your credit health. Every time a lender or creditor pulls your credit report, a “hard inquiry” will be noted, which can pull down your credit score.
It should be noted that asking for a credit limit increase can be a good thing. That’s because it can reduce your credit utilization ratio, which is the amount of revolving credit that you currently use divided by the credit you have available to you. A low credit utilization ratio is typically a good thing for your credit score, but just be wary that such a request can temporarily affect it in a negative way.
8. Not Paying Library Fines
A few dollars owed in library fines might not sound like a big deal, but if the library decides that you’ve waited too long to pay, they could call a collections agency to get on you to pay up. If that happens, it could be reported on your credit report and your score can be pulled down.
9. Being Late on Rent Payments
Like any other bill, your rent needs to be paid on time every month. If not, you could suffer a reduction in your credit score if your landlord decides to call a collections agency to come after you. This delinquency can the stay on your credit report for a few years, which can not only affect your credit score, but it can also make it harder for you to land another rental in the future.
The Bottom Line
The best way to keep your credit score healthy is to understand exactly what things can give your score a boost and what can drag it down. Once you know what can affect your score – both positively and negatively – you can be more prudent about maintaining a healthy score in order to boost your odds of securing a mortgage with rates and terms you can be comfortable with.