How Someone Can Ruin Your Credit Without Committing Identity Theft
Your credit score is, well, everything: it determines how expensive loans will be (and whether you can get a loan at all), whether you can rent an apartment or buy a house, even whether you can get a job. The higher your credit score , the better your life experience will be. This makes monitoring and improving your credit score a very good idea to protect against identity theft and the credit destruction it can cause.
But it doesn’t take a crime syndicate and an elaborate identity theft scam to ruin your credit. In fact, it doesn’t require a crime at all: Other people (friends, family, and complete strangers) can accidentally ruin your credit in a number of ways if you’re not paying attention.
Joint accounts
A checking account does not have a direct impact on your credit score under normal circumstances. Even if you’re always barely in the black or occasionally overdrafted, your credit score won’t change as a result. Having a joint account does not matter unless mistakes are made. As long as you pay any fees or penalties associated with the account as required, your credit score will be fine.
However, if you don’t pay these fees and they go toward collection, your credit score will be affected . If you have a joint account with a spouse or partner and the relationship ends, be sure to officially close the account and divide the funds as needed. If you leave it open and the other person on the account fails to maintain it or takes it all and the unpaid fees start being written off to a zero balance, you may wake up one day to find that your credit score has plummeted.
Co-borrowers on the loan
Co-signing a loan for a close friend or relative may seem like a kindness, but it also opens you up to all sorts of financial dangers . Debt will work against you by increasing your credit utilization , which can hurt your score. And if the person you co-signed with falls behind on payments or defaults on the loan, your credit score will suffer as well. Of course, the co-signer may not intend to ruin your financial life, but if they completely ruin the loan you helped them get, it will still happen. Be sure to check their financial situation before making your credit vulnerable to someone else’s decisions.
Authorized user
There are two main reasons why you might want to make someone an authorized credit card user: convenience; because it allows them to make purchases on your behalf; or help them build their credit if they can’t qualify on their own. But an authorized credit card user is not a joint account holder —they can spend the money, but are not (officially) responsible for the bills —that’s you . If they go card crazy one weekend in Vegas and rack up massive debt, your credit rating will suffer.
Credit requests
Complete strangers can also unintentionally damage your credit. When you apply for any form of credit, companies will do what’s called a ” hard check ” of your credit score to make sure you’re a good risk. Hard inquiries usually have a minor and temporary impact on your credit score, so if you shop for credit or open multiple credit cards, you may see a short-term decline. But you may have too many hard inquiries , which could cause your loan to be flagged as risky. More than six complex inquiries over a two-year period may reduce your ability to obtain credit.
Businesses are generally prohibited from suddenly taking your credit without reason, but mistakes do happen. And some companies that offer their own credit cards or store credit programs may casually ask if you want to participate without telling you that it requires a serious request. For example, car dealerships will often fulfill multiple requests if you give them your information even after you’ve left.
Mixed report
Credit reporting is a complex thing. All those hundreds of millions of people looking to use credit cards and apply for a mortgage need to have clear records, so you should check your credit reports regularly. In addition to incorrect information, you should be wary of a mixed credit report , which is when someone else’s information is included on your credit report. Dealing with this problem can be painful, and in the meantime, a complete stranger can ruin your credit score (probably through no fault of their own).
If you notice that your credit score has recently dropped and you haven’t done anything to explain the change (such as applying for credit, increasing debt, or closing old accounts), it could be identity theft or some other form of credit fraud. Or it could be someone who is ruining your financial life without even bothering to commit a crime.