When it comes to your credit history, chances are that you aren’t thinking about your gym membership. But maybe you should be. While your monthly gym membership payments aren’t going to show up on a report with the three major credit bureaus, your failure to cancel your membership could, in fact, ruin your credit. This could go for other monthly services that you sign up for.
Do You Know the Terms of Your Agreement?
One of my friends found out the hard way that a gym membership could be ruinous to her credit. When she decided to stop visiting the gym, she simply instructed her bank to stop allowing the automatic debits from her checking account. She figured that was enough. What she didn’t realize, though, was that the agreement with the gym spelled out specific actions that needed to be taken in order cancel the membership. On top of that, she had to give 60 days’ notice to cancel the membership. Which meant that when the gym didn’t receive its payment, it started reporting her missed payments to a credit bureau.
She didn’t realize what was happening until the account was turned over to a collections agency a few months later, and she received a letter. By then, missed payments had been reported to the credit bureau, and it had been reported that her account had been turned over to collections. She obtained a copy of the membership agreement she had signed, and realized her huge mistake. Her credit had been trashed sufficiently to prevent her from getting the best interest rate on a car loan.
Before you agree to anything, you should know the terms of membership. Know how to cancel the right way, and make sure that you jump through those hoops when you are ready to terminate the relationship.
Non-Credit Accounts Matter, Too
Many of us make the mistake of thinking that utilities payments, gym membership payments and other bills don’t matter on the credit report. This is because when you are paying on time, no one cares — but those payments aren’t reported to the three major credit bureaus. (There are some alternative consumer reporting agencies, like PRBC, that will track your on-time, non-credit payments if you pay a fee for the set up, and convince companies to report.) However, if you miss payments on a regular basis, non-credit billers can decide to report the delinquency to the credit bureaus.
The information falls into the category of payment history — the most important factor of your FICO score. Since your credit score is based on information in your credit report, having these negative items in your report can lead to a lower credit score, and all of the consequences of a less than desirable credit history. This means that it is vital that you pay your non-credit obligations on time. The utility company may not report you after one or two late payments, but if you make it a habit, the company may decide to do something about it. And if you have enough missed payments, your account might be turned over to collections, which is another problem.
The Bottom Line: Even your non-credit accounts can ultimately affect your credit score if you don’t take proper care of them. Understand the terms and conditions associated with memberships and other non-credit accounts, and abide by them. Especially if you decide to cancel.