7 Credit Demons You May Never Have Considered

Good credit is one of the keys to financial success. It can assist in getting better interest rates on loans, determine whether someone rents you an apartment, if you get better insurance rates and, in some cases, whether a company hires you.

The old-school conventional wisdom for good credit is, pay your bills on time; live within your means; don’t be stupid. But let’s get specific. There are some pesky credit killers you may not have considered that can sneak up on you and eat away part of your all-important credit score.

Car rental reservations

 If you use a debit card to reserve a rental car, the rental agency may require a credit check. If so, your credit score will drop because every credit inquiry costs you points. Generally, those points will be added back to your score a year later.

A better option is to confirm your reservation with a credit card, which doesn’t require a credit check. When you return the car, you can pay for it with the debit card and the end result is what you wanted to do from the beginning.

Closing credit cards

Old-school wisdom used to be that you close any credit cards you didn’t use and have as little credit as possible. Closing credit cards can actually hurt your credit.

Today, lenders look at your capacity, which is how much credit you’ve been extended and how much of that credit you’ve used. For example, if all your credit cards have a combined limit of $50,000 and you’ve used $25,000, you have 50% capacity. Lenders usually like capacity of at least 25%. Closing a credit card account lowers your capacity and can damage your credit score.

Past due rent payments

Some renters think that rent payments are an agreement strictly between themselves and the owner of the property. But if you miss a payment, or several, the landlord has the right to report you to the credit reporting agencies-TransUnion, Experian and Equifax. If that happens, delinquency notes will be added to your credit report and will show up when you apply for credit in the future.

Defaulting on recurring bills

Being slightly past due on things like cellphone bills, utility bills or other similar recurring bills will generate several notices to you before the provider decides you’re not going to pay and they cut you off.

But the provider still wants its money and you’ll be turned over to a collection agency. Even if you pay what you owe, you’ll still be reported to the three credit reporting agencies and your credit record will reflect the late payments.

Walking away from gym membership contracts

You wanted to get in shape. You signed a gym membership contract. After a few months you decide getting in shape isn’t for you. So, you stop going to the gym and you stop paying for it. That can come back to haunt you.

Even though it may seem insignificant, it’s still a contract and you agreed to the terms and conditions. You may be able to get out of the contract, but you have to talk to the gym about closing the account. There may be some early termination penalties. But that’s a lot better than having the gym report your non-payment to the credit reporting agencies.

Outstanding medical bills

There’s been a long-held belief that you can hold off paying medical providers and it won’t affect your credit. Not true. It may take longer before you see negative credit listings on your credit report, but it will eventually happen. 

The three major credit reporting agencies—TransUnion, Experian and Equifax—have a 180-day waiting period before medical debt appears in your credit history. The six-month grace period is designed to give you enough time to correct errors on the bill, pay or get your insurance company to pay it, or work out a payment plan. Unpaid medical bills can stay on your credit report for seven years from the original delinquency date. Payment history is the biggest single factor in your credit score. It makes up 35% of your score.

Too many credit card applications

It’s not a bad thing to have credit cards. It’s not a bad thing to apply for credit cards. But if you apply for too many in a short period of time, lenders may look at you as too big a risk and deny the credit you’re asking for.

Ten percent of your FICO score, which is the number that helps lenders determine how likely you are to repay a loan, is based on how you shop for credit. Opening several new credit accounts in a short period of time represents great risk—especially for people without a long credit history.

Also, every time you apply for a credit card, the lender checks your credit and that reduces your credit score for a few months.

Be strategic about your credit. Protect it. Abusing credit privileges, even those that seem inconsequential, can have long-lasting affects you don’t want.