You probably already know that timely credit card payments can help boost their credit score, while late payments or having too much credit card debt can lower it. But there is more to credit score reporting than that. Here are four actions that can hurt your credit score that you may not know about.
Closing a credit card
A lot of people are well-meaning and think it’s best to get rid of credit cards they are not using. 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, close the card with the smallest limit, as that will impact your credit utilization ratio the least.
Not paying your taxes
As well as getting you into trouble with the IRS, failing to pay 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. Tax liens have the potential to remain on your credit report indefinitely, and it’s considered a serious black mark for lenders. Once the lien occurs, it’s problematic regardless of what the balance is. Here’s how to remove tax liens from your credit report.
Applying for too much credit at once
When you apply for credit, whether it is a mortgage, a car loan, or a credit card, 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 too many inquiries on your report because lenders see them as a red flag that you’re desperate for credit. Inquiries within the same 14-day period show us a single inquiry for mortgages and car loans, but not for credit cards and personal loans.
Defaulting on your cell phone bill
One unpaid cell phone bill can lower your score. If a bill goes to collections, it can appear on your report and damage your score. Here’s the kicker: paying off collections doesn’t make it disappear. Don’t think that paying it off will make that activity go away. You can negotiate a removal from your credit report with debtors, but it is not an automatic thing. In fact, late payments and collections can remain on your credit report for seven years.
Enough about actions that can hurt your score. Let’s look at one that doesn’t.
Marrying someone with bad credit
Tieing the knot with someone who has 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 keep their credit scores independent of one another. You might find it harder to qualify for a mortgage or another loan, but it doesn’t lower your score.
However, that’s not to say that you should obsess over your credit score at the expense of your financial health. Often, consumers focus on behaviors that may boost their credit score in the short term without creating good long-term financial habits. 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 credit is what’s called a “soft pull”).
Don’t let the number be the sole driver of your decisions. Learning and maintaining good financial habits is the secret to a healthy credit score.