Since early adulthood, it’s been ingrained that good credit is required for financial freedom. A good score is synonymous with better economic opportunities, more readily available options, and, overall, a sort of monetary positive karma.
With that knowledge and the vague understanding that there are negative consequences to having bad credit, you cross your T’s and dot your I’s to protect your credit score—but have you done everything?
Beyond on-time payments and meticulous budgeting, there are risks you might not even be aware of. Nefarious actors or accidental clerical errors can have a disastrous effect on creditworthiness.
I Make My Payments on Time, How Is My Credit at Risk?
Maintaining good credit isn’t just about making your minimum payments on time. Many other factors influence your credit score, including opening too many new accounts at once, closing old credit accounts, making only minimum payments, and consistently maxing out your line of credit. However, some of the real dangers are the ones that can strike out of nowhere, risks that most people overlook:
- Identity theft. If the wrong type of human gains access to your personal information, they will use that information to open credit lines, take out loans, or make large purchases—all under your name. Usually, by the time you realize something is wrong, the damage to your credit score has already been done.
- Data breaches. It feels like there is a new data breach each week, and that’s because data breaches are becoming increasingly prevalent across almost every industry, including healthcare, finance, education, and government. While breached data may not be used immediately, it often ends up for sale on underground dark web markets.
- Reporting errors. While not nefarious, these human errors can cause your credit score to drop significantly without any late payments on your part. Incorrect late payments, duplicate accounts, and outdated debt can all appear on credit reports.
The Overarching Affect of Credit Score Perils
In the United States, your credit score defines your financial reputation. A higher credit score represents the trust that you will repay your debts. Lenders are more inclined to offer better loan terms, lower interest rates, and higher credit limits, which can lead to better financial security both in the short and long term.
Inversely, a bad credit score can result in higher interest rates, denied loan applications, difficulty renting an apartment, and even trouble passing a background check for certain jobs. Repairing a damaged credit score can take months or even years.
The only thing worse than making personal choices that negatively affect your credit score is making all the right choices and still running into a credit issue—especially if you find yourself blindsided by a credit issue the moment you go to apply for a mortgage, finance a car, or get a background check for a particularly exciting job opportunity.
How to Protect Yourself
Taking proactive measures is crucial to safeguarding your credit and ensuring that potential threats are addressed before they escalate. Below are some effective strategies to help you stay in control of your credit health:
- Check your credit regularly. Get free reports, look for unknown accounts, incorrect balances, or late payments that weren’t late.
- Monitor your credit around the clock. Invest in a credit monitoring service, which can automatically alert you to questionable activity on your credit accounts, unauthorized credit inquiries, or changes to your credit report. This way, you don’t have to constantly monitor your credit yourself, and you can address any potential issues before they escalate.
- Set up credit card alerts and freezes. Many banks offer to set up free alerts for suspicious credit line activity. If something doesn’t look right, freeze your card and issue a fraud alert.
- Don’t sleep on credit report inconsistencies. Contact the credit bureau immediately if you notice an issue. The FCRA (Fair Credit Reporting Act) is there to protect you.
- Review your online security. Use strong, unique passwords and enable multi-factor authentication on your financial accounts. Be mindful of where you input credit card information.
Bottom Line
Your credit score is too important to leave unattended. If you’re making payments on time, budgeting effectively, and doing all the right things to maintain a strong credit score, don’t let outside risks tank the score you’ve worked so hard to build. Monitor your credit to catch issues early—it’s best to address possible risks before they happen instead of after. Remember, nothing is worse than not knowing there’s a problem until it’s too late.
