4 rotten eggs that may be hidden in your credit report
If you’re a parent, then you’ve probably hidden some colorful, candy-filled eggs for your kids on Easter (or perhaps you go the old-school route of hard-boiling and dying your eggs). An Easter egg hunt is a fun tradition – but of course, you want all the eggs to be filled with the sweet kind of surprise.
While Easter surprises can be tons of fun, surprises on your credit report are another story – especially if your report contains some of the following rotten eggs.
1. Unexpectedly high credit card balances
Every kid learns the lesson at least once that binging on jelly beans and chocolate bunnies leads to upset tummies. (Right? I wasn’t the only one?)
Well, it’s also bad to binge on credit and run up a high balance. Doing so could hurt your credit utilization ratio, which is the percentage of your available credit you’ve used. If you want a high credit score, you need to keep it below 30%.
If you keep this ratio low and diligently pay off your card each month, it may shock you to find your credit report shows a high balance anyway. That can happen if your credit issuer has not yet reported your new balance – which it does only once a month.
If you charge $5,000 of household expenses on your card each month and pay off the bill on the 11th but your creditor reports your $5,000 balance on the 9th, then it will always look as if you owe a lot. The only way to avoid that is to pay off the balance before the date your creditor reports. Your lender may tell you its report date if you ask, or you can try making payments on different days and find the best day through trial and error.
2. Installment loans masquerading as revolving credit
When you got that motorcycle loan or borrowed for your living room sofa, you probably thought the debt would be reported as an installment loan you’re paying down on a fixed schedule. Sadly, it’s common for motorcycle loans, scooter loans, and store-financed purchases to be reported as though they’re unsecured revolving debt – similar to credit card debt.
With better credit, loans will you cost less, and you'll be able to put some of that extra cash toward something else. (Photo: Getty Images)
That can have unexpected negative effects – like making your credit utilization ratio look really high during the early payoff period. If you find your loan is being reported this way, your best option may be to pay down the balance ASAP or to take out a new personal loan to pay off the existing debt.
When you pay off that debt using a new personal loan that shows up properly as an installment loan, you’ll not only resolve your utilization issue, but you’ll also get a new type of debt on your credit report. That can lead to a credit score boost, because – just as you want more than one kind of candy in your Easter basket – lenders like to see you can be responsible with all different kinds of loans.
3. Hard inquiries you didn’t expect
You probably know that when you apply for loans or credit cards, you get a hard inquiry on your credit report. But you may be surprised to find there have been inquiries from unexpected sources, such as rental car companies, cable TV or cellphone providers or utility companies.
Unfortunately, having too many inquiries on your credit report is just as bad as getting too many black or white jelly beans in the bag. (Who eats those flavors anyway?) When you have a bunch of inquiries in a short time frame, your credit score takes a hit, because multiple requests for credit may suggest you’re about to bite off more debt than you can chew.
It’s often possible to avoid these hard inquiries if you ask. Your utility company may be willing to let you make a cash deposit in lieu of a credit check, or you can put your rental car on a credit card so the agency can put a hold on your card instead of checking your credit. It’s especially important to avoid unnecessary inquiries if you’re going to take out a big loan soon, such as a mortgage.
4. Unexpected unpaid accounts
Did you know rabbits have excellent memories? That must be how the Easter Bunny knows every kid’s favorite candy. Unfortunately, even the best of us humans can forget things – like unreturned library books or unpaid bills.
Even small fees, such as unpaid fines or parking tickets, can end up showing on your credit report as delinquencies if they’re turned over to a collection agency. And a delinquency can do serious damage to your credit. If you find yourself with an unpaid account you didn’t know about, call the company you owe and ask if it will remove the negative info from your credit history, provided you pay what’s due.
And to avoid that problem in the future, set yourself reminders on your cellphone’s calendar.
Root out the rotten eggs
You don’t want your credit score to stink, so it’s imperative that you check your credit report regularly. You can check each credit bureau’s report free once a year at AnnualCreditReport.com.
While it may not be as fun as an Easter egg hunt, the rewards you get will be a lot greater. With better credit, your loans will cost less, and you’ll be able to invest some of that extra cash in buying even more Peeps and chocolate next year – and perhaps accomplishing some bigger financial goals, too!
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