Here's my shameful secret: When I was 20 years old, I had a collection agency on my tail.
I worked a part-time job at Fairweather clothing store for several years in my teens, and was offered a store credit card. I racked up the card with the floral dresses and blazers (it was the early 90s) that I wore while working. When I switched to a serving job my first year in university, I forgot one important thing – to pay off that Fairweather card. I made small payments now and again, but it was pretty much out of sight, out of mind. Plus, I moved, so the bills stopped getting to me.
Nine months later, I was faced with a collection agency calling to claim the $800 or so dollars I owed. Shocked and embarrassed, I ended up having to dip into scholarship money to pay off my bill.
It was a horrifying lesson learned, and it took me several years to get my credit rating back on track. Letting a credit card balance languish is a credit no-no I should have known about (I blame it on foolish youth), but maintaining a good credit score is about more than just paying the bills.
Here are six other things that can hurt your credit rating:
Too much credit
If you have a handful of credits cards and a huge amount of "room" on each of those cards, you might think that would showcase your admirable restraint. However, having a massive amount of credit available to you won't necessarily endear you to a bank when you're applying for a loan, said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada.
"Having 10 different credit lines with low balances on them, a creditor will look at that and say, 'This person is coming to me for an additional loan, but if they max out on all their different credit lines and credit cards, they are going to have way too much debt in comparison to what they're making, so adding another [loan]could potentially put this person in worse position,'" Mr. Schwartz said.
Never using your credit card
You might think that locking your credit card away and never using it is a surefire way to maintain good credit. However, part of your credit score is based on your payment history, so never using your card could hurt you because the creditor can't assess the risk associated with you. "If you have no history, you're a bit of an enigma to the creditor," he said. "But if you do have a history and you're showing repetitive payments … you become a better risk for the creditor."
This is also the reason why it might be a good idea to hang on to the card you've had since you were 18, as long as you've been using it responsibly all these years. "When it shows on an American Express card, member since "X", it does mean something," Mr. Schwartz said.
If you don't pay parking tickets or library fines, your municipality will eventually want to collect. "If it ends up in the hands of a collection agency, it's going to affect your credit score," Mr. Schwartz said.
This can be particularly hazardous when you move house. Mr. Schwartz said he had a client who ended up in collections because of a toll bill for Toronto's Highway 407. She had moved a couple times and forgotten about the $20 left outstanding – and it had a drastic effect on her credit rating.
If you and your ex-spouse applied for a credit card or line of credit jointly, be aware that you may be responsible for any debts incurred by your ex, even if you split the debts as part of the divorce agreement.
"You can go to a creditor and say, 'Look, we're divorced and as part of the decree, he was supposed to pay that amount,' but the creditor doesn't care. If [your spouse]isn't paying, then it's your responsibility, unless you get released from that card in court," Mr. Schwartz said. "You need to get permission from the creditor in order for you to be removed off that card, and they may not give you that release. What's their motivation for letting you off the hook? They just want to get their money."
Applying for lots of cards
If you are the type of person who applies for every credit card in every store that you're offered, beware. A large amount of "hard pulls" (inquiries on your credit for the purpose of obtaining new credit) can make you seem like a bigger risk, Mr. Schwartz said.
"If you're showing a lot of inquiries over a short period of time, a couple of things are happening," he said. "It could be that you're having difficulty managing your money and something is on the horizon that you as the consumer can see but isn't readily evident to the creditors. That's a signal to them to say, 'Whoa, let's take a look at this because all of a sudden, this person is looking for more credit. If one or two or three of these [cards]start to land, they will have all this credit, but not the income to handle it.'"
Renting a car
Car rental companies could be doing credit checks on you when you rent, which could increase the amount of "hard pulls" you're getting. Companies need permission to do a credit check, but you might not even know that you've signed that over (does anyone read all the fine print on rental car contracts?) "You're usually in a hurry and that's the place you want to spend the least amount of time," Mr. Schwartz said.