4 Ways You Can Wind Up With Bad Credit & Not Even Know it

Did you just check your credit scores and find out the numbers are much lower than you expected?

“While you might remember missing a payment or defaulting on a loan, there could be many other reasons your credit score can take a dive while you are unaware,” said Cary Carbonaro, managing director at United Capital Financial Advisers and author of “The Money Queen’s Guide.”

Here are four ways your credit score can be negatively affected without you knowing it.

1. You Only Pay the Minimum Payment

You may think you have good credit because you are paying all your minimum payments on time every month. While making on-time payments is the largest factor in your credit scores — making up roughly 35% of your scores — the second largest factor is your debt usage in comparison to your total credit limit. Many experts advise keeping that percentage below 30% — ideally 10% — to have the best effect on your scores.

“Making minimum payments while continuing to charge or keeping high balances lowers your credit score, even though you are paying on time,” Carbonaro said. “With high balances, the more you can stop swiping the card and pay over the minimum payment while still paying on time, the more your score will steadily improve.”

2. You Forgot an Outstanding Bill That Went Into Collections

Carbonaro says it’s easy to move away and forget about an outstanding bill you owe. One common example of this happening is when college students move out of apartments at the end of the year without paying the final utilities or cable bill balance. These small forgotten bills can end up as a collection account on their credit report and they find out about it years later when they apply for an auto loan.

Once any type of account is sent to collections for non-payment, your credit score may decrease by more than 100 points depending on other aspects of your credit report, according to a recent VantageScore report on how credit behaviors affect your credit score.

Collections are serious business, no matter what the amount and can stay on your credit report for up to seven years even after they’re paid, Carbonaro said. She advised following up with all billers when you move to provide forwarding addresses and pay all final balances so this doesn’t happen to you.

3. You Are the Victim of Financial Infidelity in a Marriage

Never heard of that?

“That’s when there is hidden spending or debt on either side of a marriage, both of which can destroy your credit without you knowing it,” Carbonaro explained. “Many types of negative marks can end up on your credit report if your spouse is using your credit to open accounts or taking out joint credit cards and spending up a storm while you don’t know about it.”

Her best advice for avoiding additional credit problems during a divorce if you don’t trust your spouse financially is to put a credit freeze on your credit with all three bureaus. This way, at least no one can open any new credit accounts in your name during this time. (And, keep in mind, taking out credit in someone’s else name without their involvement — meaning that person has agree to co-sign or otherwise open a joint account — is considered identity theft.)

“While this makes life tough for you, too, the peace of mind that your credit is safe is worth it,” advises Carbonaro.

4. You Never Check Your Credit Reports or Credit Scores

If you are a victim of identity theft or there are errors reported on your credit report, your credit can take a deep dive.

“But, if you never check your credit score and see the dip or check your credit reports and find the errors, you will be oblivious to credit problems that you didn’t even cause,” Carbonaro said.

She says the more proactive you can be about checking your credit scores and credit reports, the easier it is to dispute mistakes and correct them and to catch identity theft if it happens. (You can pull your credit reports for free each year at AnnualCreditReport.com and see two of your credit scores for free, updated every 14 days, on Credit.com.)

Image: Christopher Futcher

The post 4 Ways You Can Wind Up With Bad Credit & Not Even Know it appeared first on Credit.com.

5 Surprising Things That Can Impact Your Credit

surprising-things-that-affect-credit

Hopefully you already know the five factors that can impact your credit — payment history, mix of accounts, amount of debt, history of credit inquiries and the age of your accounts. But did you know some of your other behaviors can have far-reaching consequences as well? It’s true — even your cable bill can come back to haunt you. Here’s a look at five of the lesser-known factors that can affect your credit.

1. Parking Tickets 

Parking tickets are one of those things that can easily slip through the cracks. But let those tickets slide for too long, and your credit could get dinged. The ticket could be reduced to judgment, John Heath, a credit expert with Credit.com affiliate Lexington Law, said via email. “The judgment is a public record that can be picked up as a derogatory mark on your credit report.”

2. Credit Report Errors 

“Consumers, on average, across all the [credit] agencies have some sort of error on their credit file,” Michael Bruemmer, vice president of consumer protection at Experian, said. Typically, they don’t have a clue about it because they haven’t checked their credit in awhile. (You can pull your credit reports for free each year at AnnualCreditReport.com and view two of your credit scores for free, updated monthly, on Credit.com.) Not sure how to go about disputing any errors you’ve found? This handy guide can help you get started.

3. Applying for Too Much Credit 

There’s nothing wrong with shopping around for good credit offers (and some credit scoring models are built to allow for a certain amount of comparison-shopping for a particular type of loan). But apply for too much credit at once and your score could take a nosedive, Bruemmer warned. Some people think adding a new card will increase their credit utilization, or level of debt compared to their credit cards’ available credit limit. But, while this is correct in theory, applying for too much credit at once can create several hard inquiries — each application for a can trigger a credit pull — which can make you look risky in lenders’ eyes.

4. Public School Fees 

Failing to pay public school fees for things such as labs, library books, athletics and so on can result in a referral to a collection company, Heath said, so don’t forget to take care of them. If you don’t, and they end up in collections, it can reflect poorly on your credit history and stick with you for years, even after you’ve repaid the debt.

5. Utility Bills 

As with parking tickets, not paying your utility bills can also do a number on your credit, Heath said. “These past-due bills can result in a referral to a collection company, which in turn can result in a derogatory mark on your credit report.”

Image: Highwaystarz-Photography

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