5 Shockingly Small Habits that Can Affect Your Credit
Your score and profile is as delicate as a vase resting on a table. If handled with the right hands, it will remain in one piece, shining and spotless for years to come. Left in the hands of the wrong person, however, it will fall and break, leaving you in a state of anxiety and frustration as you struggle to pick up the pieces. And we all know how easy it is to break a vase. Bump into a table or leave your toddler unattended, and that expensive vessel will be a sparkling mess for your dust pan. Your credit profile is just as fragile. In fact, there are some behaviors and habits that can affect your credit even if they don’t seem like a big deal.
Ignoring Parking/Speeding Tickets
Overstaying your visit at your best friend’s condo or skipping the meter is a risk that many people take. Sometimes you walk back to the car and see no ticket. And of course, there are the times when you see the ticket in the dash, which is more of an annoyance than anything else. Here in Toronto, a parking ticket is usually only $30. For that reason, a surprisingly high number of people ignore it. Not only is it a bad move to take – it can turn into an infraction which can lead to a license suspension if not paid – but it can also affect your credit score.
Unpaid tickets do indeed go to collections. The same goes for speeding tickets. They tend to be more serious and affect driving records as well as insurance rates. The consequence of unpaid speeding tickets are two-fold – license suspension and a report to collections. It’s better to take the lighter punishment instead of dealing with harsher treatment later.
Ignoring Library Fines
You got a library fine for keeping Moby Dick two weeks longer than you we’re supposed to (after all, it’s 700+ pages and you were busy). You return it and decide to ignore the fine since you won’t be borrowing a book anytime soon. Not a good idea. For one, the fine increases. Secondly, you can have your library privileges suspended (until you pay the fine), and you might even receive a letter about it. However, unpaid library fines go further. If months go by, then the fines can go to a collection agency, and that doesn’t look good on your credit profile. It is annoying having to pay a library fine, but it’s a small price to pay in the grand scheme of things. Better yet, try your best to return books on time, or at least renew them if you still have some reading to do.
Cancelling Gym Membership Incorrectly
It’s been six months – you still have your love handles or spaghetti arms. The service and cleanliness of the gym is going downhill. And now you have to wait 30 minutes for the beefcakes to finish hogging up the bench or machine. You’re fed up with the gym, and want to leave. Some may call you a quitter although there’s nothing wrong with wanting to cancel. However, it’s vital to end your membership correctly. There are procedures you should follow, and they require signing paper work. Many people bypass this stage.
They call their bank and tell the bank to stop the automatic payments made to the gym. As a result, the gym who is unaware of this, reports to credit bureaus that you have non-payment (although this is not the case), and it can turn into a collections report. If you plan to cancel a gym membership, make sure to learn gym policy. And if you’re about to sign up at a fitness club, make sure to read the terms and agreements of your contract.
Buying a New Phone
In this day and age, people swap phones pretty frequently. You buy a phone, and it corrupts. You buy another phone, but then get rid of it for its updated version. And then that superphone falls in the toilet. Understandably, phones are an essential part of our lives now, and you should buy one that offers you the most for what you can afford. But peep this: buying a new phone can affect your credit, depending on the inquiry made by the company. The soft inquiries they make don’t affect you, but they occasionally make hard inquiries, which can affect your credit score. It may seem pretty heavy for such a small purchase. However, phone contracts are long-term commitments, and your phone providers want to see that you are available. Fortunately, you can avoid the hard inquiry by requesting for a soft one instead. This also reigns true when signing up for internet or T.V. services.
Closing a Credit Account
One of the more confusing aspects of how credit scores break down, revolves around what is known as your credit utilization ratio. Essentially, this refers to the balance on your credit in contrast to its limit. For example, let’s pretend you have a limit of $10,000 on one card and a balance of $4,000 on it. Now let’s say you have a second card with a $5,000 limit and no balance on it. Combined, these cards give you a total of $15,000 in terms of credit. Your credit utilization ratio would be 27% (rounded) ($4,000 out $15,000 is only 27%, when rounded).
However, if you close the second card with no balance on it, you now have $10,000 to work with. So the balance of $4,000 on your $10,000 card now stands at 40%. It’s recommended that you keep your ratio below 30%, making that 40% ratio too high. That’s why it’s wise to pay down the existing balance on your card before closing another account completely.
Avoiding a Snowball Effect
Look at all of the “offenses” listed above. Most of us have done one of the things mentioned, and probably didn’t suffer immediate consequences (that can’t be said for unpaid speeding tickets!). However, if you ever find yourself in such situations again or the first time, it’s worth thinking about the long run. Just about every aspect of your life can have a cascading effect on your credit, many of which the average person wouldn’t expect. The lesson? Don’t take any purchase, transaction or financial obligation lightly. You don’t need to be paranoid about your habits, but you should consider how they might trickle down to your credit score. After all, if being careful means saving yourself from credit woes in the future, then it’s certainly worth it.