4 Credit Report Mistakes That Could Be Costing You Big

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Getting your credit application rejected can put a major hold on your life plans.

It doesn't matter whether it's for the new car that you so desperately need, or for the bonus 50,000 air miles that come with that fancy credit card; getting rejected sucks. And while you may think that you're doing a good job with your credit score, that may not always be the case (See also: 10 Things You Didn't Know Are Lowering Your Credit Score).

Here are four credit report mistakes that you need to watch out for.

1. Unforeseen Hard Inquiries

A hard inquiry takes places every time a potential lender reviews your credit. While these so-called "hard inquiries" may lower your credit score a bit, they're necessary for lenders to determine your ability to pay back a loan (or your likelihood to default on payments).

In general, having too many hard inquiries is not good for your credit report because it shows that you may be taking on more credit that you can handle. The exception to this rule is when you're rate shopping within a short period of time for a mortgage, car note, or student loan. In fact, rate shopping is encouraged by credit reporting bureaus. For example, FICO considers all mortgage rate shopping within a 45-day period as a single inquiry.

However, there are surprising items that may also unwittingly trigger a hard inquiry.

• Expect a credit check when you pay for a rental car with a debit card. Some companies will double-check that you're capable of paying in case of a major loss. 

• As portrayed in the TV sitcom New Girl, buying an expensive smartphone may require your mobile provider salesperson to look up your credit score.
   
• With some online credit card portals, requesting a credit limit increase is as easy as just clicking a button. Still, when you start this process, the credit card company most likely runs a credit check.

Keep these events in mind so that you don't end up with too many hard inquiries on your credit report. (See also: Zooey Deschanel Never Pays Late Fees and 5 Other Smart Money Lessons From Celebrities)

2. Identification Problems

When you request your annual credit report, it's very tempting to skip the identification section. After all, it just contains your name, date of birth, residence address, name of spouse, and phone number.

Think again.

This section is one of the most common sources of credit report mistakes. Your credit report is compiled from data from the three major credit bureaus: Equifax, Experian, and TransUnion. Each one of these keeps their own data, so one or all of them may run into an error.

While some errors may be minor, such as leaving out your apartment number, others may be very serious, such as mixing up John Smith, Sr. with John Smith, Jr. Depending on the payment history of the person that you're being mixed with, your credit history may be negatively affected.

Make sure to check your personal information and be on the lookout for mistakes. Major red flags for possible credit fraud are:

• An incorrect birth date,
   
• A residence address that you don't recognize,
   
• An unusual phone number; or
   
• A spouse or co-applicant when you don't have one.

If you have an issue with your credit report, you can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).

3. Unrequested Closed Accounts

While paying off a credit card is always a good idea, closing a credit card is not. That's because 15% of your FICO Score is based on the length of your credit history. This means that you want to keep your accounts open so that you can demonstrate to lenders that you're capable of using credit responsibly for an extended period of time. (See also: How to Use Credit Cards to Improve Your Credit Score)

Unrequested closed accounts can damage your credit score in two ways:

• The average age of your credit accounts shrinks. This is particularly bad when the closed account is your oldest account. 
   
• Your credit utilization ratio is likely to increase. Let's say that you have two credit cards, each with a credit limit of $1,000. Since you have a balance of $200 on one and $300 on the other, you are utilizing 25% of your available credit. If you pay off and close the credit card with the $200 balance, now your credit utilization ratio goes up to 30%.

This is why you need to check the fine print of your store cards and credit cards. To keep your card open, some companies may require you to have a minimum balance or activity threshold for a specific period of time. For example, when I bought my wife her diamond ring at Kay Jewelers, I financed part of the purchase with a store card. After paying off the balance, I didn't use the card for an entire year and Kay notified me via mail that my card had been closed due to inactivity.

4. Owing Money to Uncle Sam

It goes without saying that owing money to the IRS is such a bad idea that it will hurt your credit report as well. (See also: Simple Ways to Rebuild Credit)

What you may not know is that there are many more ways in which you can end up with a public record on your credit report.

The most common example that I see here in Hawaii is when tourists get a parking ticket or speeding violation. Whether intentionally or unintentionally, the tourist forgets to pay the citation charge ("Hey, I'm on vacation, man!"), and that's when things start heading south. Not only will the tourist get hit with a fee from the rental car company, but the government will also likely try to collect the money from the tourist.

Ignore the charge at your own peril. If the government turns the account to a collection agency, they will not only add penalty fees but also report the lien to the credit reporting bureaus. A public record stays on your credit report up to seven years. Public records are taken very seriously by potential lenders.

To avoid public records hitting your credit history, follow these three tips.

• Pay all government fines, ranging from public library fees to moving violation tickets, on time;
   
• Notify the U.S. Postal Service every time you move, so you never miss a government bill; and
   
• Check your credit report for derogatory public records, such as bankruptcies, judgments, liens, and convictions that didn't actually happen.

Have you ever spotted an error on your credit report? What did you do? Share your story in comments.