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7 unexpected mistakes that can lower your credit rating

One small step in the wrong direction can lead to a drop in your credit rating. The correspondent talks about his experience. Money Talks News Allison Martin

Photo: Shutterstock

This happened to me once, because I didn’t pay the check for $ 12,70. My non-payment was eventually transferred to a credit agency. The result was a decrease in my credit rating by 80 points and several months of regret. The rating later recovered, but this slight oversight still haunts me.

Besides the setback that happened to me, here are a few unpleasant mistakes that can lower your credit rating:

1. Booking a car rental

Planning to rent a car? If you use a debit card for your reservation, a car rental company may require credit screening. This may affect your credit rating. Better option: confirm your reservation with your credit card to avoid an unnecessary request for a credit screening. Then, when returning the car, pay the final bill with your debit card.

2. Closing a credit card

Closing a credit card account sounds reasonable, but it can actually hurt your credit rating because it affects the so-called credit utilization rate. This is the percentage of your available loan that you use.

This ratio affects both FICO credit scores and VantageScore credit scores. The lower your ratio - that is, the fewer available loans you use, the better your credit rating will be.

Closing a credit card that you do not use reduces the credit available to you. This, in turn, increases the credit utilization rate and harms your credit rating.

On the subject: Personal experience: how I improved my credit rating by 134 points in less than a year

3. Overdue lease payments

Do not pay your rent on time and the landlord may report your wrongdoing to the credit bureaus. If you are having problems with rent, meet with the landlord and suggest an alternative payment plan. This way you can save your good name and credit.

4. Non-payment of recurring payments

If you’ve even overdue your bill from a mobile phone service provider or utility, you will most likely receive a few notifications before the service is terminated.

But once the non-payment reaches a tipping point, the service provider will hand over the debt to the collectors and subsequently report to the three main national credit companies - Equifax, Experian and TransUnion. Don't ignore correspondence and outstanding obligations.

5. Violation of gym membership

Even if you are tired of spending hard-earned money every month at a gym that you don’t use, you can’t just leave. First, close your account, otherwise it may cost you fines for early termination of the contract and lead to a decrease in the credit rating.

6. Unpaid medical bills

If you have problems paying medical bills, make sure that you resolve this problem in a timely manner. for example, request a payment plan. Ignoring collectors by turning off the sound on the phone can ultimately lead to problems in your credit report.

Due to changes in the credit industry announced several years ago, medical debts are registered only after a 180-day waiting period for insurance payments. In general, credit reporting agencies pay less attention to outstanding medical debts. However, timely maintenance of medical bills can help you avoid downgrading.

On the subject: How to achieve a credit rating in 800 points: 8 steps

7. Excess credit card applications

10% of your FICO credit rating is determined by how you shop for a loan. According to Fair Isaac Corp. or FICO:

“People tend to have more loans today and take out new loans more often than ever. The FICO results reflect this reality. However, studies show that opening several new credit accounts in a short period of time poses more risks - especially for people who do not have a long credit history. "

Keep this in mind the next time you are offered a store credit card at the checkout as part of a transaction that can save you significant money on your purchase. This one-time savings can be expensive, leading to a decrease in your credit rating.

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