Your credit score plays a huge role in your financial life, influencing everything from loan approvals to interest rates. Most people know the basics for maintaining good credit: pay bills on time, avoid high balances, check your reports, but there are plenty of unexpected factors that can impact your score.
The good news? Once you understand these surprising pitfalls, you can avoid them entirely or minimize their effects. Below, we’ll discuss some surprising culprits that can negatively impact your credit score and share practical tips to help you stay in control.
Unpaid Parking Tickets and Fines
Did you know a forgotten parking ticket or unpaid library fine could hurt your credit? Municipalities and organizations can send delinquent accounts to collection agencies, which then report them to the credit bureaus. Even these small debts in collections can result in a significant drop in your credit score.
How to Stay Ahead
- Resolve fines promptly: Pay parking or late-return fines as soon as you receive the notice to avoid escalation.
- Double-check for overlooked fines: Check with local agencies or libraries to ensure you don’t have unnoticed penalties, as some debts slip through the cracks.
- Clear fines with amnesty events: Keep an eye out for amnesty events, which allow you to clear fines without penalties or collection consequences.
Unpaid Medical Bills
Medical bills often come with processing delays, confusing insurance claims, or unexpected expenses. Unpaid balances can quickly end up with a debt collector, harming your credit.
Steps to Manage Healthcare Costs
- Verify your bills: Review medical bills carefully for errors or unexpected charges. Contact your provider or insurance company if something looks off.
- Negotiate if needed: Many hospitals and clinics offer payment plans or financial aid programs. Remember, it’s better to make small, consistent payments than ignore the bill entirely.
- Act quickly on collections: While medical debts have a grace period before they’re reported, once they hit collections, your credit takes a hit. Address those bills as soon as possible.
The Risks of Co-Signing Loans
Co-signing a loan for someone might feel like a kind gesture, but it comes with significant risks to your credit. When you co-sign, you take on responsibility for the debt. If the primary borrower misses payments, you’re on the hook, and the missed payments will show up on your credit report.
Tips to Protect Yourself
- Only co-sign if you trust the borrower: Make sure they have a history of on-time payments and stable finances.
- Stay informed: Request alerts or updates from the lender so you can monitor their payment status.
- Set expectations upfront: Have an honest conversation about payment responsibility before co-signing.
Ignoring Credit Reports
Your credit report is more than just a rundown of your debt. It’s your first line of defense against errors, fraud, or outdated information that could drag down your score. Overlooking it can lead to big problems.
Best Practices for Monitoring Your Credit
- Check your report regularly: You’re entitled to one free credit report per year from each of the three major bureaus. Use AnnualCreditReport.com to access them.
- Dispute mistakes: Errors like duplicate accounts or incorrect balances should be addressed immediately by contacting the credit bureau and the creditor.
- Watch for unfamiliar accounts: Regularly reviewing your report can help you identify and address identity theft early.
Frequent Credit Applications
Every time you apply for new credit, like a credit card or loan, the lender performs a hard inquiry on your credit report. While one or two inquiries won’t make a big dent, several applications in a short time frame can negatively affect your score. Multiple inquiries signal to lenders that you may be relying too heavily on credit, which could indicate financial trouble.
Ways to Avoid Inquiry Damage
- Space out applications: Only apply for credit when you actually need it.
- Use pre-qualification tools: Many lenders offer pre-qualification checks, which provide an initial decision using a soft inquiry that doesn’t affect your credit.
- Apply strategically for loans: When shopping for major loans, such as mortgages or car loans, complete all applications within a short period (14-45 days depending on the scoring model) to ensure they’re treated as a single inquiry.
Not Using Credit Cards
Ironically, not using credit at all can have an adverse effect on your score. Credit scoring models evaluate your ability to manage debt responsibly, which means occasional small purchases, and on-time payments, can work in your favor. Be aware that accounts may be closed for inactivity, which can lower your available credit and hurt your utilization score.
Keep Your Cards Active
- Make smaller purchases: Even small, planned purchases, like gas or groceries, can keep your account active.
- Pay balances in full each month: Regular use doesn’t have to mean carrying debt. Pay off your balance monthly to maintain good credit habits and avoid interest charges.
- Prevent closure: Monitor your accounts and watch for inactivity notices. If you’re alerted to a possible closure, make a quick charge to keep the account open.
Take Charge of Your Credit Today
Your credit score doesn’t need to be a source of anxiety. With thoughtful planning and attention to these unexpected factors, you can keep surprises to a minimum and set yourself up for long-term financial health.
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