Your gym membership would probably never cross your mind as a bill that could negatively affect your credit report, but maybe you should add this monthly obligation to the list of things to stay on top of if you are thinking about getting a loan soon. 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 as well.
Do You Know the Terms of Your Agreement?
One of my friends found out the hard way that a gym membership could ruin 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 to cancel the membership. On top of that, she had to give 60 days’ notice to cancel the membership. This 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.
David’s Note: This is especially important now because many gyms are struggling financially because they aren’t allowed to open and some have been charging customers anyway. In fact, I need to ask Emma to speak with the gym membership she belonged to because she told me recently she had to get the credit card company involved in order to get the gym to stop billing her when the gym wasn’t opened.
Non-Credit Accounts Matter, Too
Many of us make the mistake of thinking that utility bills, gym membership payments, and other similar monthly obligations don’t matter on the credit report. This is because when you are paying on time, no one cares — and 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 setup.) 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 credit score. Since your 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’s vital that you pay your non-credit obligations on time. The utility company may not report you after one or two late payments, but the company may decide to do something about it if you make it a habit. And if you have enough missed payments, your account might be turned over to collections, which is another problem altogether. Of course, they will cut your utilities too, which can be pretty inconvenient. It can also be life threatening, say if the gas company cuts off gas to your house and it’s the middle of winter.
The Bottom Line
The extra money my friend now needs to spend on a higher car loan comfortably covers the gym membership’s costs and more. This is on top of the headache of having to deal with collections, and possibly not being able to qualify for a low rate on a home loan if she were to buy one in the future. And who knows whether she will lose an opportunity at a future job because her employer decided to pass on her without letting her explain the situation if they check her credit report. Don’t make a careless mistake like her because it might snowball into a disaster.
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. This is especially true if you decide to cancel. You never want to leave the other side hanging, because they could make it a priority to ruin you.