5 surprising ways you can sink your credit score

You likely know that not paying your credit card bill on time or missing a payment can hurt your credit score. But there are less obvious ways to sink your score -- some of which you may be doing without realizing the impact you're causing.

Here are five surprising ways you may be harming your credit score: 

1. Lowering your credit limit
You may think that you're boosting your credit score by lowering your credit limit on your credit card, but that could be having the opposite effect. Credit utilization is the second-most important credit score factor, after repayment history. score-mistake

Your credit utilization is how much credit you have available compared to how much you're using. The lower that ratio, the better, but most experts recommend keeping it below 30 to 35 per cent.

So by lowering your credit limit, you're actually increasing your credit utilization ratio.

"Most people are not aware that when you cancel some credit lines, even after paying them off, it can hurt your credit score," Seun Adeyemi, senior financial planner at SA Capital, said in an emailed response to questions.

For example, let's say you have two credit cards: a Visa with a $1,500 balance and a $4,000 credit limit, and a Visa with a $1,500 balance and a $6,000 credit limit. Your credit utilization is only 30 per cent because you're using $3,000 of your available $10,000.

However, if you lower your credit limit to $4,000 on that second Visa, you're now using $3,000 of an available $8,000, pushing your credit utilization above 35 per cent.

2. Renting a vehicle with a debit card instead of a credit card
Whether you're renting a vehicle for business or pleasure, it's a lot easier when you use a credit card.

Using your debit card can result in a pull on your credit, and while it may be a soft pull -- meaning it doesn't hurt your credit -- there's a chance it may be a hard inquiry, which does show up on your credit report.

The process varies between rental companies. For instance, a spokesperson for Budget rentals says at some Budget locations, using a debit card will result in a soft inquiry. However, a Hertz spokesperson says if you use a debit card to rent a vehicle, there will be a hard pull on your credit the first time (after that, any time you use debit, there is no credit check at all).

Both spokespeople say there is no credit check if you use a credit card.

An added bonus of renting your vehicle with a credit card instead of debit: Many credit cards include car rental insurance, which can save you that added expense.

3. Not paying your library fines
Failing to return a borrowed item to the library by the due date triggers late fees. Often, these late fees are minimal, but failing to pay them has consequences.

For example, not paying your fines may lead the library to revoke your borrowing privileges, and the library could send your overdue account to a collection agency, which can negatively impact your credit score.

Furthermore, if a library item is damaged or lost, you'll be responsible for replacing it.

Usually, you must owe $40 or more before the library will send your account to collections. If you fail to pay and keep adding to your late fees, it may be easier to reach that threshold than you think.

To avoid all of this, check your local library's policy on rentals, and, of course, pay your late fees in a timely manner.

4. Not paying your parking tickets
When it comes to parking tickets, you have two choices: you can pay them or fight them. What you don't want to do is ignore your parking tickets.

If you do opt to conveniently forget parking fines, after a certain period, your account will be sent to collections. The rules on parking fines vary by city, but, for example, in Toronto, collection agencies are used when your vehicle is in plate denial -- meaning you cannot renew your plate sticker or purchase new plates -- for two years, and your ticket is in excess of $300.

"Remember that time you briefly ran into the grocery store to grab a bag of milk but were inappropriately parked so it caused you a ticket, and you just tossed it in the glove compartment?" said Adeyemi. "Well, that can hurt you because you often forget about the ticket till it gets sent to collections and you start getting collection calls."

If you can't pay your parking fines, Adeyemi said, call the municipal office and see if you can work out a payment agreement.

"This is important," he said. "Although late payments still affect your credit, it gets worse when it goes into collections."

By worse Adeyemi means you could end up without wheels to get to work or to the store.

5. Owing the taxman
If you have a balance on your tax return, it's wise to pay off that debt to the Canada Revenue Agency (CRA). Unpaid taxes can cost you in late penalties and interest -- and make it harder to get loans.

When filing your taxes, any balance owed for the previous tax year is due April 30th. (This is sometimes extended to the following Monday if the 30th falls on a weekend).

Although not paying your taxes doesn't directly impact your credit score, it can make it difficult to obtain loans.

For example, when applying for a mortgage, many lenders ask for a copy of your notices of assessment from the previous two years. If the lenders see that you owe the CRA a lot of money, they may offer you a higher interest rate on your mortgage or deny your application altogether.

Taking care of your credit score means more than paying your credit card bill on time, but it doesn't have to be complicated. As a rule of thumb, try to pay any outstanding debts in a timely fashion, and be conscious of every action involving your credit card.

See related: Why and how you should ask for a credit limit increase, 5 common credit score mistakes, Watch out for these 7 mistakes when applying for a credit card
Updated May 3, 2017

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