From paying your bills on time every month to making sure you keep your credit card balances low, just about everyone knows all the easy ways to protect their credit score. There are several well-known factors that can negatively and positively impact your credit – and a handful of other surprising ways you are hurting your score. Here are four of the lesser-known ways that many people negatively impact their credit score:
Signing Up For a New Phone or Cable
According to the Pew Research Institute, as of January 2014, 90 percent of American adults owned a cellular phone. When you signed up for a new cellphone contract or a signed a contract with your cable or satellite provider, chances are the company did a hard inquiry.
When it comes to applying for credit there are two types of inquiries: hard inquiries and soft inquiries. Soft inquiries won't show up on your credit report, but hard inquiries do show up on your credit report and can be very damaging. A soft inquiry can often occur without your knowledge and are used to check your credit score and other background information, such as your credit utilization and debt-to-income ratio. For example, if you've ever been pre-approved for a mortgage or credit card, it was because the company performed a soft inquiry.
Conversely, a hard inquiry occurs when you personally apply for credit and the company checks your score before making any final lending decisions. These hard inquiries will stay on your credit report for two years, and if you have several hard inquiries on your report, it can dramatically impact your score.
Going through the legal process of a divorce will not impact your credit score. However, if you and your former spouse are both legally and financially obligated to pay a bill, such as your mortgage or credit cards, you will be held liable.
Unfortunately, if you file for a divorce and your former spouse doesn't keep up with their obligations, the late payments, collection activity and lawsuit will also show up on your credit report. In many cases, one of the spouses will not be aware of the negative impact on their credit score until some severe, costly damage is done.
Sticking to One Type of Credit
From the age of your credit history to your credit utilization, there are several factors that make up your credit score. One of these factors that many people aren't aware of is the types of credit. Typically, there are three types of credit that most consumers will utilize: installment account, revolving account and an open account.
A revolving account means that you don't pay the same amount every month. The most common example is a credit card. A car payment or mortgage payment are two examples of an installment account, which is an account that requires you pay the exact same amount of the total balance every month. An open account must be paid fully each month. One type of an open account is a cellphone bill.
If your credit score only features one type of credit account, it can actually hurt your score. One of the best ways to raise your credit score is to have a mix of all three types of accounts. This shows potential lenders that you are able to handle the responsibility of paying each type of bill.
Cancelling Your Gym Membership
Finally, there is one common and surprising way that many Americans damage their credit: improperly cancelling their gym membership. Many gyms make their clients sign a contract that states they will pay monthly to utilize the facility. Unfortunately, if you decide to stop going to the gym and do not honor that contract, the gym will report your late or skipped payments to the three credit bureaus.
If you are planning on quitting your gym, make sure you go through the proper cancellation procedure. Otherwise, you might wind up damaging your credit simply because you didn't want to go to the gym!
From getting a new cellular phone to not utilizing all three types of credit accounts, there are several lesser-known ways that many Americans are hurting their credit. If you are planning on securing a loan in the future, make sure you understand your credit report and what you can do to improve your score.
For more information on credit and loans, talk with a loaning company, such as Payday Express.