Maintaining a good credit score is incredibly important when working toward financial goals in life: buying or leasing a vehicle, and applying for student loans, personal loans, credit cards, or mortgages.
Speaking about mortgage approvals. You’ve been working hard, saving money, and spending countless hours browsing for that new place to call home. You have good income with a steady employer, barely any debt, you already own a car as an asset, and your credit score is pretty good.
Except for those unpaid parking tickets and overdue library fees you’ve been sitting on. But, those shouldn’t matter right? Well, they do.
In this article, we’re going to talk about 10 surprising things that can ruin your credit score.
Risk #1: Closing a Credit Card
Although this sounds like a great way to lower the amount of credit you have outstanding, closing a credit card can be as harmful to your credit score as missing payments. Major credit bureaus track 5 things on your credit file:
- Payment history (makes up 35% of your total credit score)
- Credit utilization ratio or debt usage (30%)
- Account mix (10%)
- Credit age (15%)
- Credit inquiries (10%)
Closing a credit card account is a triple threat that affects your credit utilization ratio, credit age, and account mix—that’s a whopping 55% of your score. When you close an account, you lose a portion of your credit limit which is calculated in your credit utilization. When your credit utilization goes up, your credit score drops.
Risk #2: Requesting Credit Limit Increases
Lenders perform a “hard inquiry” or “hard pull” on your credit score anytime you apply for a new credit card, loan, mortgage, or credit increase. This action can temporarily hurt your credit score by a few points—even if approved—and will happen anytime your credit report needs to be pulled from Experian, Equifax, or TransUnion. Because requesting a credit limit increase will result in a hard inquiry, it’s best to wait until your credit card issuer offers an automatic increase as this won’t affect your score.
Risk #3: Co-Signing a Loan
If you’re trying to improve your credit score so you can get a mortgage, you may want to think twice before co-signing a loan for family or friends. Co-signing loans of any kind can negatively impact your credit score in 3 ways:
- The size of loan and/or account balance can affect your utilization rate
- Any missed payments (regardless of who missed them) will show up on your credit report
- Any new inquiries will also appear on your report
Like you, your loved ones may not know the risks of having you cosign a loan for them when you’re planning to buy a house of your own—keep this in mind when you gently turn them down.
Risk #4: Vehicle Loans or Leases
Vehicle loans and leases carry the same risks as co-signing—the size of loan/account balance, payment history, and the new inquiry will all appear on your credit report. It’s best to save the vehicle financing until after you secure your mortgage.
Risk #5: Student and Personal Loans
Same deal as co-signing and financing a vehicle—applying for a student or personal loan means adding more payment history, another loan/account balance, and another new inquiry to your credit report.
Risk #6: Outstanding Payments
Credit card payments, medical bills, utilities, vehicle loans, internet, tv, or cell phone plans—anything that requires you to make regular payments can be sent to debt collections when you seriously default on payments. And because payment history makes up 35% of your total credit score, getting dinged in this area can drastically affect your credit rating. Always staying on time and up-to-date with your payments looks fantastic on your credit report.
Risk #7: Withholding Rent Payments
Think you can get away with withholding rent payments or breaking a lease with no intention of paying the lease-break fees? Think again. Many landlords won’t hesitate to report your missed rent payments to the credit bureaus. This will negatively affect your credit score. Landlords won’t typically report your entire payment history—just missed payments or unpaid bills.
Risk #8: Using Business Credit Cards
Many business owners may not realize that using the business credit card can impact their personal credit rating. Some credit card companies offer supplementary employee credit cards at no charge—using the primary cardholder’s account. The primary account holder is usually the business owner, therefore they have the most liability and the biggest risk to their credit score when allowing authorized users to make purchases on their credit line.
Risk #9: Unpaid Parking Tickets
Did you dig yours out yet? Like the missed payments we talked about in #6, unpaid parking tickets and fines are treated like an outstanding payment. If you’re not diligent on paying these fees, expect them to be sent to collections.
Risk #10: Overdue Library Books!!
You didn’t take me seriously, did you? Well, you better find those long-lost books and pay those fees. Libraries are just as capable of sending your information to collections when you default on payments.
Need Help With Your Credit Score When Applying for a Mortgage?
If you found yourself nodding and feeling regret about making any of the above mistakes, you’re not alone. Thousands of people have been where you are. But, don’t give up on those hopes of owning a home just yet.
My name is Joel Cooper, and I can help make your home buying dream a reality. If you’re looking to buy a home in the Toronto or GTA area, let’s talk about how you can improve your credit score so you can start building toward your future.
Hi, I’m Joel, a real estate professional based in Toronto.
My approach is simple—I put you first. I believe in open communication, total transparency, and meaningful results. I’ll guide you through the real estate process, market values, and always keep the focus on you—and your needs.