Debunking credit card myths: Can I prevent something from showing on my credit report?
Editor's note: This is a recurring post, regularly updated with new information.
We frequently discuss travel rewards credit cards here at TPG. By carefully applying for and then utilizing these cards at various merchants, you can unlock fantastic redemptions like first-class flights and luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards, so today I'll continue our new series that debunks these myths and allows you to begin planning for your next vacation.
Today I'll continue looking at your credit score and debunk a myth about preventing certain negative items from appearing on your credit report.
It's always nice to think that you're in control when it comes to basically anything in life, and this applies to your credit report. While the major credit bureaus don't disclose exactly how they arrive at your credit score, you may think that you can prevent negative items from appearing on your report. Unfortunately, that isn't the case, as the creditor and the creditor alone has complete control over what information they send to companies such as Experian and TransUnion.
Related: Your next credit card approval is in the hands of these 3 agencies
To take this analysis deeper, it's important to understand how your credit is reviewed when you apply for a new account. Generally speaking, a hard inquiry takes place when a lender is making a decision about whether to lend you money, be it for a car loan, mortgage loan or line of credit on a credit card. On the other hand, a soft inquiry will take place when your credit is reviewed as part of a background check, typically for things like applying to rent a new apartment or during the process of applying for a new job.
Related: What is the difference between a hard and soft pull on your credit report?
Only a hard inquiry will impact your credit score, and even then it isn't a permanent impact. However, just because a soft inquiry won't appear on your credit report, an unpaid bill from that company or individual can still impact your score.
Here's an example of how this might happen. Let's say you move cross-country to take a new job. However, you forget to pay the final month's electricity bill, and you don't set up your mail to be forwarded to your new address. You may be completely unaware that you owe money, but if the company can't get hold of you, it may wind up sending that debt to a collection agency, and this may lead to it appearing on your credit report. Even though it isn't officially a line of credit, that debt can still have a negative impact on your credit score.
There are a few simple ways to prevent this type of thing from happening:
- Always make sure to set up mail forwarding when you move. The U.S. Postal Service makes this very easy, as it charges just $1 for up to a year. This allows plenty of time for any last-minute bills from your old address to make it to your new one.
- Consider automatic payments. If you're ever worried about forgetting a payment, the vast majority of companies (including credit card issuers) allow you to pay your entire statement balance automatically on the due date each month. This can be a great way to ensure all of your bills are paid, though you'll obviously want to make sure that you have enough money in your bank account to prevent overdraft fees.
- Regularly check your credit report. This final suggestion has many benefits beyond identifying new negative marks on your credit report, as you can look for potential signs of identity theft and make sure that there aren't any mistakes on your credit profile. I personally use Credit Karma and try to check my report at least once a month. This site even has a specific section where it'll list out accounts sent to a collector:
Of course, you do control the most important aspect of your credit report: managing your lines of credit responsibly. For some suggestions on how to do this effectively with your credit card account(s), be sure to check out my 10 commandments for travel rewards credit cards.
Bottom line
There are many things that you can control when it comes to your credit score, but unfortunately, you can't prevent an unpaid bill or account sent to a collection agency from appearing on your credit report. This power lies entirely with the creditor. However, if you stay on top of your finances and make sure that all of your accounts (both credit card and otherwise) are paid on time and in full, you'll maintain a healthy credit score and ensure that you can take advantage of new and exciting sign-up bonuses and other perks. Hopefully this post has given you some insight into how to accomplish just that!
Additional reporting by Benét J. Wilson.