When good credit goes bad

There are four credit "dangers" you should always have on your radar. If you're not careful, these situations can sneak up on you and lead to a credit disaster. So let's be sure you know how to avoid them...

Unpaid bills This may seem like a no-brainer, but you'd be surprised at how many people don't realize that unpaid bills can hurt their credit. If you skip payments on anything from your mortgage or car loan—to a $25 credit card payment—your credit score can drop. Even late payments can negatively affect your score.

The biggest culprit for many people is an unpaid medical bill. It's easy to see how it happens: you assume your insurance company is taking care of the bills and they don't get paid. It's usually a simple mix-up of what your insurance company does and does not cover.

Unfortunately, this confusion can result in a collections record on your credit report (and those stay on your report for at least seven years). So it's important to fully understand your insurance coverage and make sure your medical bills are paid. And if a collections account appears on your credit report due to a mistake, be sure to work with the parties involved to get the issue resolved.

Identity theft When someone steals your identity and goes crazy with your credit—it can mean chaos for your credit report. It is a real problem these days. But if you know how to protect your identity, you have a better chance of protecting your credit.

Are you taking steps to cut down on your risk? You should start with the following: shred everything with your name on it before you throw it away...only use your credit card on websites you know are safe...don't carry your Social Security card in your wallet...and consider paying your bills online or with automatic payment (less mail for thieves to get their hands on).

You should also consider signing up for credit monitoring. It's an easy way to keep a close eye on any changes to your credit.

Divorce After the hassles of going through a divorce, the last thing you need is to have your credit suffer because your ex-spouse is racking up credit card bills or missing payments. So get your credit report and make sure all joint and co-signed accounts from your marriage are closed or refinanced as soon as you can.

Judgments The verdict is in: most judgments such as small claims, civil suits and tax liens are guilty of tainting your credit standing. These can remain on your credit report for seven years or longer. And that can make it harder for you to get the best interest rates on loans.

You see, credit doesn't have to be scary. The more you know, the easier it is to stop things from sneaking up on you.

About the Author:

TransUnion's TrueCredit empowers consumers to manage their credit health, providing information on credit-related issues that range from the significance of a credit report to identity theft protection. TrueCredit's offerings include educational materials, free monthly newsletters and online products, including credit reports, credit and insurance scores, credit monitoring, debt management tools and identity theft insurance services. www.truecredit.com/