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Introduction.

Just because you’ve not got any outstanding personal loans, don’t have a mortgage or have even paid off all your credit card bills doesn’t mean to say that you’re not at risk of running up a bad credit score and being denied future loans, mortgages or credit cards etc. The problem is the sort of debts that, in all honesty, you have forgotten about or, even worse, never even knew were being built up. These debts are often referred to as hidden debts and often the only way of revealing them is to ask one of the credit rating agencies what your credit score and credit history is.

Can't think where that debt suddenly came from?

How can having hidden debts happen?

Working out how much you owe on credit cards or loan repayments is easy enough, but what about all those small and forgotten debts like an outstanding cell phone bills – that sit on your credit file waiting to trip you up when you apply for a loan? For anyone with a lot of debts they know that their credit rating is low and that missing a relatively small debt or repayment probably won’t have a large impact on them. However, the shocking thing is that people who usually clear their debts quickly and would assume themselves to have a high credit rating – are less likely to run a credit score check to make sure that there aren’t any outstanding debts they need to pay off. Which is how hidden debts can accrue – by assuming your credit is good and not having a regular credit history check. So, just where might these hidden debts arise from?

Just turn on the tap and keep paying them!

Hidden debt enemy number 1 – recurring payments.

Recurring payments can usually apply when you sign up for a particular service to be paid for on a monthly or yearly basis using one of your credit cards. However, unlike telling your bank to make payments to them – they simply take money from your credit card, without needing your approval. Which is fine until you no longer want to use that service. Here’s an example of how recurring payments could land you with a bad credit score. Say you sign up for a cable TV service, move home and forget to cancel the subscription – until you contact the cable TV company and cancel the subscription they will continue to take money from you. Even worse, if you think destroying the credit card will prevent them from getting your money – wrong. They will still seek to charge you through the credit card company, creating a bad and hidden debt. To avoid this situation arising you need to cancel both the subscription and the credit card. Insurance companies in particular are very fond of using recurring payments – so make sure if you switch insurance companies to cancel any recurring payments as well as the policy. Regularly checking your credit score and history will reveal any unexpected recurring payments.

Don't just destroy credit cards – cancel them.

Moving banks and moving on.

We all want to get the best banking deal available and these days it’s just so easy to switch banks, but be warned that moving banks is another time that hidden debts can occur. If just one regular payment of $50 a year gets forgotten the in the old transfer – your old bank will quickly put you in debt to them lowering your credit score. Similarly switching credit cards can leave you with a hidden debt. Moving on to a better credit card deal is fine – but don’t forget to cancel the old one, otherwise you could be hit with dormancy fee. ie. If the credit card company simply thinks you haven’t used your card for a while they can levy a charge against you on that card – as you’re no longer using it a hidden debt will arise. Or, suppose you literally move on and move home; forget to tell a credit card company who keep sending bills to your old address – a hidden debt is sure to follow. Just in case you need telling – check your credit history to check for hidden debts.

Watch how much you spend and owe on energy bills.

Energy use and hidden debts.

None of us like it when the energy company owes us money because we’ve been paying too much monthly for our energy bills. However, if you are in energy debt, paying too little per month, you could be putting yourself at risk of creating a hidden debt. Let’s say at the end of the winter period you owe $200 to your gas or electric supplier. On the monthly bills you receive this might seem OK as across the year, in the summer months when you use less energy, the debt will clear itself. The fact is at that moment you are in debt to the energy company and a credit check against you could show up as another hidden debt. Time to get your credit history check again. You can help yourself with energy bills by not letting the energy company constantly use estimated meter readings – sign up online and send them true meter readings monthly.

Pay off hidden debts as soon as you get your credit history.

Preventing hidden debts.

The above are, of course, just some of the ways that a hidden debt can arise – quite feasibly through no real fault of your own. However, the only way to guard against hidden debts is to regularly check your credit history and score. You are entitled to a free credit score check form the major credit companies like Experian and Equifax once a year. However, should you wish to for just a few dollars you can have regular credit history checks made to make sure that you haven’t suddenly and inadvertently become prey to a hidden debt, so that if you have you can pay it off immediately.