Did you know? … credit score influencers
A common misconception is that your credit score will only be affected if you are borrowing money. Unfortunately, this is not the case as your credit report takes into account your complete financial history.
So what does this mean? Other financial actions could impact your credit. We have highlighted some events (other than applying for credit) that may have an impact on your credit score.
1. Library fines
I am sure most of us have incurred library fines when forgetting to return books by their due date. They are often seen as a non-essential problem with no negative consequences (other than the money owed) coming from not paying the fine immediately.
However, with strains on local budgets and the libraries feeling the brunt from the lack of finance, some have taken to sending larger debts to collection agencies. A debt sent to a collection agency will be reported to the credit bureaus and will appear on your credit report. In addition, a credit agency may charge you additional fees along with the fine. So now, not only has your credit rating been affected but you also owe more money.
2. Unpaid taxes
Unsettled or late tax payments are a matter between only you and the government right? Unfortunately not! Failing to settle your tax payments could result in the government issuing a tax lien on you and this shows up on your credit report for a number of years – pulling down your once healthy credit score.
Definition: Tax Lien – Imposed by law upon property within your possession to repay taxes owed.
3. Applying for new phone or utility contracts
It is becoming more regular for phone and TV providers to run a credit check on you prior to agreeing to a contract. If the provider runs a soft credit check your score isn’t damaged. However, a hard credit check appears on your file and makes it seem that you are applying for credit. The more checks you have done on your credit file the more likely they are to bring down your credit score.
4. Cancel memberships
When signing up to a service, such as a gym, we often agree to pay a monthly fee that is tied into a minimum term contract. The payments can be made via a direct debit from our bank account to make the payment process more efficient.
Cancelling these services by removing the direct debit order from your account can cause further implications. The services will likely come with a cancellation policy where paperwork needs to be filed and notice given. Not following the policy may result in the non-payments being reported to the credit bureaus and the money owed handed over to a debt collector.
5. Unpaid traffic tickets
If you fail to pay your parking or speeding fines two things may happen. Firstly, the government will hit you with additional fees for late payments. Secondly, they could report you to the credit bureaus with the fines appearing as debt. In worst-case scenarios, debt collectors will again be called into action. Either way, unpaid tickets will come back to haunt you.
6. Closing unused credit accounts
Logically it makes sense to close a credit account if you are no longer using its services. In reality, closing a credit account could negatively impact your credit score.
A major influence on your credit score is your credit utilisation, which is the amount of credit available that you have used. Each credit account you have open counts towards your total credit limit whether it is being used or not. Closing an account will lower your credit limit and will increase your credit utilisation. If your credit utilisation goes above 40%, your credit score can be affected.
Additionally, the length of your credit history can play a part in determining your credit score (if all other variables are equal). The longer you have had an account the better it is for you. This means that if you’re set on closing accounts, try to keep the oldest ones open.
7. Skip rent
Experian was the first credit bureau to start reporting on-time rent repayments on a credit report. If on-time payments are not usually recorded, does that mean missed or late rent payments don’t play a role in your credit score as well? Unfortunately, no.
Your landlord may directly report missed payments to the credit bureau if they are particularly frustrated with slow or failed payments. More likely though is they will ask a collection agency to recoup money owed. Once a collection agency is engaged, the payments will be reported to the credit bureaus as debt – impacting your credit score.
8. Missed utility payments
Unfortunately, like rent payments, utility bills paid on time every month do not play a major role in improving your credit score. However, consistently late or missed payments can again be reported directly to credit bureaus or to a debt collection agency if they are called upon.
If you close an account for any reason (e.g. moving home) last payments due can sometimes be missed. It is suggested that 30 days after closing the account, you call the utility company to make sure there are not any unpaid bills left on the account. You do not want any unexpected issues causing you issues in the future.
9. Opening a bank account
It is not always the case, but some banks may run a hard credit check on you before allowing you to open an account with them. A hard credit check will show up on your score and could temporarily affect your rating.