How Someone Can Ruin Your Credit Without Committing Identity Theft
Your credit score is, well, everything: It determines how expensive loans will be (and if you can even get a loan), 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 lived experience will be. That makes monitoring and improving your credit a very good idea, to defend against identity theft and the credit ruination it can cause.
But it doesn’t require a crime syndicate and a complicated identity theft scam to ruin your credit. In fact, it doesn’t require a crime at all: Other people (friends, family, and total strangers) can casually ruin your credit in several ways if you’re not paying attention.
Joint accounts
A checking account has no direct impact on your credit score under normal conditions. Even if you’re always just barely in the black, or have occasional overdrafts, your credit score won’t change as a result. Having a joint account makes no difference—unless mistakes are made. As long as you pay any fees or penalties associated with the account as needed, your credit score will be fine.
If you don’t pay those fees, however, and they go into collections—that will impact your credit score. If you have a joint account with a spouse or partner and the relationship ends, be sure to officially close out that account and divide the funds as needed. If you leave it open and the other person listed on the account fails to maintain it, or withdraws everything and unpaid fees start to be debited against a zero balance, you can wake up one day to find your credit score has cratered.
Loan co-signers
Co-signing a loan for a close friend or relative might seem like a kindness, but it also opens you up to all sorts of financial danger. The debt will count against you, raising 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 take the hit as well. The co-signer might not intend to ruin your financial life, of course, but if they totally screw up the loan you helped them get, it’ll happen anyway. Make sure you vet their financial situation before you make your own credit vulnerable to someone else’s decisions.
Authorized user
There are two main reasons you might make someone an authorized user on a credit card: convenience; because it allows them to make purchases on your behalf; or to help them build their credit if they can’t qualify on their own. But an authorized user on a credit card doesn’t hold the account jointly—they can spend the money, but they’re not (officially) responsible for the bills—you are. If they go nuts with the card one weekend in Vegas and rack up an eye-popping debt, your credit score is the one that will suffer.
Credit inquiries
Total strangers can also ruin your credit unintentionally. When you apply for credit in any form, businesses will run what’s known as a “hard inquiry” against your credit score to make sure you’re a good risk. Hard inquiries generally have a slight and temporary impact on your credit score, so if you’re loan shopping or opening up a few credit cards you might see a short-term dip. But you can have too many hard inquiries, which can result in your credit being flagged as a risk. More than six hard inquiries in a two-year period can hurt your ability to get credit.
Businesses are generally forbidden to do a hard pull on your credit without a reason, but mistakes happen. And some businesses that offer their own credit cards or store credit programs may casually ask if you want to participate—and not tell you that doing so requires a hard inquiry. Car dealerships often perform multiple inquiries if you give them your information, for example—even if you’ve walked away.
Mixed report
Credit reporting is complex stuff. All those hundreds of millions of people wanting to use credit cards and apply for mortgages have reports have to be kept straight—which is why you should check your credit reports on a regular basis. Aside from incorrect information, you need to watch out for a mixed credit report—when someone else’s information is included on your credit report. Getting this resolved can be a pain, and in the meantime a total stranger may be tanking your credit score (probably through no fault of their own).
If you notice your credit score has dropped recently and you haven’t done anything that would explain the change (applying for a loan, running up debt, or closing old accounts, for example), it might be identity theft or some other form of credit fraud. Or it might be someone messing up your financial life without bothering to commit a crime at all.