Credit Score Drop: Surprising Reasons Behind the Change

March 18, 2014

You have a healthy mix of different types of credit, you are generally diligent about paying your bills on time, and your credit history is old – in the best possible way. You’d think you’d have a top-notch score, right?

Not so fast.

There might just be some unexpected factors that are putting a damper on your otherwise shining credit history. Here are a few of the odd ones to look out for.

Late Library Books or Parking Fines

Surprisingly, this was one of those things that led to an eye-rolling lecture from my dad when I was 16. But it turns out he was right – late library books can translate to dinged credit. (Please don’t tell him I said that.)

While checking out that library book was nice and free from the outset, if you didn’t turn it in, those racked up fines can actually be turned over to collections if you aren’t careful. Same thing with parking tickets – some jurisdictions will turn those unpaid tickets to collections, resulting in much more than just a boot on your tire.

Taking on a “Last Resort” Loan

You might know that not all loans are created equal, but did you know that things like payday loans, pawnshop loans or even large purchase financing (e.g. from a furniture store, etc.), could be particularly detrimental to your credit score?

These types of loans are seen as “last resort” loans and could indicate that you are a high credit risk to more reputable lenders. Also, if the loan amount is large, it could drastically change your credit utilization ratio (the amount of credit you are using vs. the amount of credit currently available to you).

Applying for a New Cell Phone or Bank Account

I recently opened up a checking and savings account at a new bank, and immediately noticed that my credit score dropped 20+ points. Why? Because the bank performed a hard credit inquiry which dinged my credit.

You could be opening yourself up to a similar fate if you attempt to open up a new cellphone account – if the phone company performs a hard credit inquiry, you score will likely drop.

My credit score has since rebounded, but if you plan on applying for a mortgage or some other life-altering purchase, beware of these possible small dings beforehand.

Credit Card Companies That Don’t Report Your Limits

In addition to your balance and payment history, the majority of credit cards report your credit limit to credit bureaus. This helps show a clear picture of the credit you are using vs. the credit available to you.

But, there are certain cards that don’t report your limit, causing it to appear as a zero limit on your report. In turn, this could artificially inflate your credit utilization to the detriment of your credit score.

So what are your options if you are in this boat? Ask your credit card company to start reporting your limits. If they don’t agree, opt for another card and decrease usage of this particular card.

Paying Your Tax Bill Late

If the April 15th deadline is long gone and you haven’t forked over the money to cover taxes owed, the IRS has the ability to file a federal tax lien with the credit bureaus.

The impact of such a move can increase drastically the more you owe. Credit.com reports that scores could drop 100 points, especially if you owe more than $10,000 and it’s over 30 days overdue.

Not Using Your Credit Cards

This might seem entirely counterintuitive, but not using your credit cards can sometimes cause credit card companies to see them as inactive and close the accounts. In turn, this can lower your available credit, raise your credit utilization, and lower your overall score.

You can easily skirt this issue by making a small purchase on a card you haven’t used for a while and immediately paying it off.