If you’re a little paranoid these days that everything could harm your credit – you should be. More and more companies and creditors are turning in payment records to the credit bureaus because potential damage to your credit rating is great at scaring people in paying bills. In some cases, seemingly benign actions can do huge damage to your credit score.
Renting a Car
Car rental companies, such as Budget, perform credit inquiries when you rent a car with a debit card, because the company wants to determine whether you are likely to have enough money to cover any damage. Credit inquiries usually do no more than 5 points of damage (out of 850), but people with the highest credit ratings can see a drop of up to 35 points, according to Lynnette Khalfani-Cox of DailyFinance.
Sending parking tickets to collection agencies is the new “it” thing for governments to do these days. Instead of letting citizens get away with not paying fines, governments are finding that they profit more from selling the debt at a discount and eliminating the administrative costs of collecting on tickets than attempting their own collection efforts. A collection account could do more than 100 points of damage.
Renting an Apartment
Landlords want to know that they won’t have to hunt you down for rent every month, so they often run a credit check. A credit inquiry related to renting an apartment will hurt you score like a check from a car rental agency, however, you can never really know if a landlord wants to run a credit check. Private lessors often do not run checks because of the cost involved, but some landlords might just charge an application fee to offset the costs of running a credit check.
In addition, rental histories are beginning to appear on consumer credit reports, notably those from Experian. The good thing is that Experian only started reporting late payments in 2012, so there is no need to worry about missed payments from 2011 and earlier.
It seems innocuous enough that retailers would help customers finance expensive items, such as furniture and large appliances like fridges and stoves. The major credit bureaus, however, consider consumer finance loans the worst type of loan to have because people taking these loans tend to have no other option. Thus, while you typically need a credit card and traditional loan, such a mortgage, to build a credit history, store financing should ding your credit rating.
Avoiding Credit Damage
Always pay off balances owed to a creditor or business as soon as possible. You never know when a company will decide to sell a debt to a collection agency, even loans less than $50. I know I had an unpaid gas bill for $25 that ended costing my credit rating about 50 points.
Ask rental companies, landlords and anyone else that provides you a service if they perform a credit check. In general, you want no more than one or two credit checks within a 12-month period.