Sometimes It’s the Little Things that Ruin Your Credit

Looking for a small business loan? Did you know your personal credit score is just as important as your business credit score? In fact, for young companies and most of the smaller small businesses I call Main Street businesses, your personal credit score is even more important. If you’ve ever been asked to sign a personal guarantee on a small business line of credit or other business loan, you likely fall into this category.

Monitoring your personal credit is pretty easy. For somewhere around $30 you can check out your current credit score and see what’s on your report with the three major credit bureaus: Equifax, Experian, and TransUnion. It’s important to know what your score is, but it’s even more important to make sure it’s accurate.

In addition to verifying the accuracy of your credit report, you might be surprised to learn how some seemingly harmless things can make a mess of your personal credit. I recently read about five seeming harmless things Gerri Detweiler, Credit.com’s Director of Consumer Education, specifically identified as harmful to your credit score. I thought it made sense to share them here.

Past Due Toll Fees, Parking Fines, or Traffic Tickets: If the state or city where you live sends you to collections for not paying a past due fee, it shows up on your credit report. Even if you plan on disputing the fee, make sure you don’t let it go to collections. Better to pay the fee on time than have that ding on your credit report.

Library Fines: Although the library doesn’t report past due fees to the credit bureaus, some will send your unpaid balances to a collection agency, and they will report you. Detweiler calls out the New York Public Library policy: “…borrowers with fines or fees of $50 or more are subject to contact from a collection agency. A non-negotiable collection fee will be applied to the account of any borrower who reaches that threshold.”

A collection account can ding your score 25, 50, or even 100 points when it shows up on your report. And, it can stay on your report for seven years—that’s a long time to explain a late return on a library book.

Storage Fees: Detweiler suggests there are about 48,500 self-storage facilities in the U.S. If you don’t pay your storage fees, even if the owner auctions off your belongings, he or she is not obligated to consider the auction proceeds as payment in full. You’ll likely hear from a collection agent, see a ding on your credit report, and have to explain why you didn’t pay the bill on your storage unit for the next seven years—even after you’ve lost all your stuff.
Closed Bank Accounts: Closing a bank account doesn’t necessarily cause the bank to ding your credit report, but if you don’t make certain they also close the overdraft line of credit associated with it, you’ll still get charged for any annual fees that might be part of your credit line. Whenever you close an account, make sure you get the final bill—if it’s a credit card, make sure you go through a year’s worth of statements to make sure you don’t miss any recurring charges.
Rental Car Insurance: Detweiler describes a rental car situation that I have also experienced. I normally purchase the additional insurance in case something goes wrong and I either get in an accident or I pick up a big rock chip in the windshield. I once was in a parking lot about to get out of my car when a truck backing up a boat for some reason crashed into the rental car. Because I had insurance it was no big deal to exchange the car and get on my way. I’ve also been glad for the insurance when a big truck flipped up a rock and broke my windshield.

I was very glad I didn’t have to worry about my insurance company dueling it out and having the rental car company come after me. “Otherwise,” says Detweiler, “while the insurance agencies and the rental car company argue over who pays for what, you may find you’re stuck with bills that have been sent to collections.”

I wasn’t aware that some rental car agencies will actually check your credit if you use a debit card to rent the car. She suggests, even if you plan on paying for it with a debit card, use a credit card to make the reservation.

These are just five examples of some pretty harmless-sounding things that can hurt your personal credit score. If you’re like me, it’s easy to sometimes ignore these types of charges, but it isn’t a good idea and can bite you when it comes time to get a small business loan. It’s kind of like those tiny little dinosaurs from the Jurassic Park, the Compsognathus, they don’t look very dangerous all by themselves, but 20 or 30 of them can rip you to shreds.