The average credit score in the United States isn't that great, and some of it might have to do with a lack of financial education. The latest results of FINRA's financial capability survey indicate that there is a serious lack of financial literacy, and that includes understanding matters of credit.
One of the ways that consumers might be ill-informed about credit is the way that non-credit items can drag down credit scores. If you aren't careful, seemingly insignificant mistakes can result in bad credit. And having bad credit can mean more than just higher interest rates.
Surprise 1: Improperly Canceled Gym Memberships
When you sign up for a gym membership, you usually sign a contract that specifies the actions you need to take in order to properly cancel. This might include providing 60 days' notice, maintaining your membership for a minimal amount of time, or canceling in person (and filling out additional paperwork).
If you don't cancel your gym membership properly, the gym will still attempt to charge your monthly fee. You might even cancel an automatic payment with your bank or credit card. No matter how you do it, the gym thinks that you are still a member and that you owe money. After a couple months of non-payment, the gym can report you to a credit bureau, and that will lower your credit score.
Surprise 2: Traffic Tickets
Scofflaws are at risk for more than the possibility of legal consequences. Some cities, counties, and states report unpaid traffic and parking tickets to credit bureaus. If you receive a citation -- even if it's in another state -- and you don't pay, you could find your delinquency reported to the credit bureaus. The situation could become even more dire if the jurisdiction turns your account over to collections.
Surprise 3: Unpaid Library Fines
When you incur library fines, it's not exactly a loan. However, your unpaid fines can be treated as credit if the library decides to turn your account over to a collections agency. Anytime a collections account shows up on your credit report, it can lower your credit score.
Surprise 4: New Cell Phones
It surprises many that credit checks are increasingly required when consumers sign up for new cell phones. Many cell phone providers run a hard inquiry before approving a new cell phone service account. This is because providers want to make sure that you are likely to pay your bill. If your credit report sends up red flags, you might be required to pay for monthly service in advance.
Since the credit check is a hard inquiry, it can bring your credit score down. Realize, too, that many cable and satellite TV providers, and Internet providers, also perform a hard credit inquiry before approving a new account.
Surprise 5: Missed Utility Payments
Missed utility payments may result in having services cut off, but many consumers don't realize that they can also impact their credit standing. Utility companies can report missed payments to the credit bureaus, and even turn accounts over to collections.
Whether it's a lapse in settling the account when you move, or whether you are having trouble making your payments, the utility company can report you.
The Bottom Line
Just because it isn't "officially" a loan doesn't mean that it can't impact your credit score and lead to bad credit. Almost anytime you have an agreement to pay for something and you miss payments there is the potential for your delinquency to be reported to the credit bureaus, or even turned over to a collection agency, making the impact greater.