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Don’t Let Your Favorite Pastime Wreck Your Credit Score

Nov. 3, 2014
Credit Card Basics, Credit Cards
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In our busy and hectic world, finding a way to relax is essential. Picking a hobby you enjoy and engaging in it regularly is a great way to wind down from a tough week.

But if you’re not careful, there’s a chance your favorite diversion could hurt your credit score. Below are four popular pastimes that could put your score in jeopardy if you make the wrong moves. Be sure to use our tips to keep your credit on the straight and narrow, no matter how you like to spend your free time.

1. Traveling

If exploring an exotic locale is your favorite way to get away from it all, you’re probably planning for your next trip right now. Figuring out where to go, finding the best deal on a flight, learning about the local culture of the destination you’re headed to – it’s a great way to while away the hours after work.

When it’s finally time to take off on an adventure, the temptation to forget about life back home is hard to overcome. This is why a case of wanderlust can potentially hurt your credit score: It’s easy to neglect a bill payment when you’re out of your usual routine.

Since payment history makes up 35% of your FICO credit score (the score most widely used in the United States), failing to pay your bills on time could cause it to drop substantially. To avoid this fate, it’s wise to set up email or text reminders for your billing due dates so that you’ll know when it’s time to pay, no matter where you are in the world. You could also opt into automatic payments – this will take the matter out of your hands entirely and make it easier to enjoy your time away.

2. Shopping

Fashionistas agree: Shopping for a funky new outfit and then scoring a great deal on it provides a lot of creative satisfaction. And with the advent of the Internet, it’s easy to engage with this hobby whenever the mood strikes.

But this can be a blessing and a curse when it comes to your credit. Thirty percent of your FICO score is determined by amounts owed, and a data point that heavily influences this category is your credit utilization ratio. This is calculated by dividing the outstanding balance on your cards by the total amount of credit you have available. Most experts recommend keeping it below 30%.

If you’re doing so much shopping with your credit cards that your credit utilization ratio meets or exceeds this threshold at any point during the month, your credit score could take a hit. Your best bet is to monitor your balance carefully and make a payment if it’s getting too high.

Another option is to spread your monthly spending between a few cards so that your utilization on each one stays low. Just be sure to pay them all off in full by their billing due dates to avoid interest charges.

» MORE: Why nearly every purchase should be on a credit card

3. Reading

Getting lost in a good book is a popular pastime for many. And if you’re in the habit of borrowing your weekly read from the local library, good for you – you’re saving a bundle on book purchases.

Just be sure to return your books on time. It has become common practice for libraries to turn large, unpaid overdue fees over to collections agencies. If this happens, there’s a good chance that the collector will report your lack of payment to the credit bureaus. This will put a black mark on your credit report that could affect your credit score for up to seven years.

Although most credit scoring models ignore collections accounts of less than $100, it’s not impossible that an avid reader could rack up a fine in excess of that amount. If you do, pay the fee promptly. Otherwise, your credit score could be at risk.

4. Gardening/home improvement

If working on your home or garden is your favorite way to relax, you’re probably making frequent trips to the major home improvement warehouse stores. If so, you’ve probably considered applying for the retail credit cards offered by these big-box merchants. While in some cases it might make sense to do so, it’s a bad idea to finance a big project by opening several cards at once – this could spell trouble for your credit.

Ten percent of your FICO score comes from new credit applications. Too many in the span of a few months is problematic because it’s perceived as a signal you’re in financial trouble. Waiting about six months between credit card applications is wise for most people. If your score isn’t in good shape to begin with, you might be better off putting as much as a year between new requests. Follow this guideline to keep a kitchen remodel or a backyard overhaul from demolishing your credit.

Reading hobby image via Shutterstock