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Your credit score plays a crucial role in your financial life: It influences loan affordability and eligibility, your ability to rent or purchase property, and even job prospects. A higher credit score enhances your quality of life, making it essential to monitor and boost your credit to protect against identity theft and its damaging effects.
You don’t need a criminal organization or an elaborate identity theft scheme to damage your credit. Surprisingly, no illegal activity is required—friends, family, or even strangers can inadvertently harm your credit in various ways if you’re not vigilant.
Shared financial accounts
Under normal circumstances, a checking account does not directly affect your credit score. Whether you maintain a minimal balance or experience occasional overdrafts, your credit score remains unaffected. This holds true even for joint accounts, provided no errors occur. As long as you settle any associated fees or penalties promptly, your credit score will remain intact.
However, failing to pay these fees and allowing them to go into collections will harm your credit score. If you share a joint account with a spouse or partner and the relationship ends, ensure the account is officially closed and funds are divided appropriately. Leaving it open risks the other person mismanaging it, withdrawing all funds, or accruing unpaid fees, which could devastate your credit score unexpectedly.
Loan co-signers
Co-signing a loan for a friend or family member may seem generous, but it exposes you to significant financial risks. The debt will increase your credit utilization, potentially lowering your score. If the borrower misses payments or defaults, your credit score will suffer as well. While the co-signer may not intend to harm your finances, their mismanagement of the loan could still damage your credit. Always assess their financial stability before risking your credit for their decisions.
Authorized user
Adding someone as an authorized user on a credit card typically serves two purposes: convenience, enabling them to make purchases for you, or assisting them in building credit if they lack eligibility. However, an authorized user does not share joint responsibility for the account—they can spend, but you are ultimately liable for the bills. If they splurge excessively, such as during a weekend in Vegas, and accumulate significant debt, your credit score will bear the consequences.
Credit inquiries
Even strangers can unintentionally damage your credit. When applying for credit, businesses conduct a “hard inquiry” to assess your risk level. While these inquiries usually have a minor, temporary effect on your credit score, excessive inquiries—more than six within two years—can label you as high-risk, hindering your ability to secure credit.
Businesses are typically prohibited from performing hard inquiries without a valid reason, but errors can occur. Some companies offering credit cards or store credit programs may casually invite you to apply without disclosing that it involves a hard inquiry. For instance, car dealerships frequently conduct multiple inquiries if you provide your information, even if you decide not to proceed.
Mixed report
Credit reporting is a complex system. With millions of people using credit cards and applying for mortgages, maintaining accurate records is crucial. Regularly reviewing your credit reports is essential to catch errors, including a mixed credit report, where another person’s information appears on your file. Resolving this issue can be challenging, and in the meantime, an unrelated individual might inadvertently harm your credit score.
If your credit score suddenly drops without any obvious cause—such as applying for a loan, accumulating debt, or closing accounts—it could indicate identity theft, credit fraud, or someone unintentionally damaging your credit without engaging in criminal activity.
