No matter the reason, overdue payment on an outstanding bill or loan can damage your credit score. Even one day late, which the industry counts as 30 days, and your score could plummet more than 100 points, warns CreditCards.com, a marketplace for cards and a resource for consumers. The impact is even larger if you have a record of frequent late payments and/or lengthy periods before an overdue payment is made. The cost to you: It's harder and more expensive to get loans or new lines of credit. Beware these five small debts that can hurt your credit standing, and pay attention to eight tips that can help keep a score in the green zone.
5 Small Debts That Can Hurt Your Credit Score
You may not remember the appointment or the argument that delayed payment, but medical bills can be marked as past due and sent to collection agencies. Call the doctor's billing department and explain the situation to get more time to sort things out. If you know you owe the money but can't afford that much at once, ask about payment plans. The good news is that the latest scoring methodology, which spits out a number that many lenders use when determining how much to lend and at what rate, considers medical debt less detrimental than other types of debt.
When moving out of an area, make sure that all your utility bills (phone, internet, cable, gas, and electric) are paid up. Although service providers should be able to contact you if you updated your address with the post office and keep the same phone number, don't risk missing payments.
You may owe the local government for all sorts of things, from parking tickets to late library books. Many governments turn late payments over to collection agencies, regardless whether it's a $500 ticket or a 25 cent late fee. And when that happens, your credit score will take a hit.
It wasn't that long ago that a woman told of getting contacted by a collections agency for $8.97 from a DVD rental she'd forgotten about five years earlier. Even if that specific debt gets less and less likely every year, the lesson is that even small fines can matter — in 2016 the Public Library Association said collections agencies were widely used by its members, with one agency recovering about $1.2 billion for its client libraries over the past 23 years. The easiest way to avoid surprises from small debts is to review your credit score.
You may never see the bill that's sent to an incorrect address. That's an unfortunate circumstance, for sure, but you're responsible for it nonetheless. Remember to update the address on your driver's license whenever you move and double check all information, including spelling, when applying for a new credit card, receiving services at an office, and arranging for any transaction that results in an invoice.
A bounced check doesn't necessarily lower your credit score, regardless of the amount, but it can dent your credit profile. This is because bounced checks are reported to the Chex Systems database rather than to the credit reporting bureaus (Experian, TransUnion, and Equifax). Lenders can look up your Chex Systems profile when you apply for a loan or open an account.
Some lenders wait a while before reporting late payments to the credit bureaus, but they're under no obligation to do so. Generally speaking, lenders for revolving accounts (credit cards) may give up to 30 days to make good, while lenders for non-revolving accounts (student or car loans) report sooner. Don't take any reputed waiting period for granted; even one day after missing a payment is a risk.
There is no free pass for late payments, even on small debts. The 99 cents outstanding on the credit card buried in a drawer can look just as bad as any other overdue payment. The latest FICO scoring systems and the competing VantageScore ignore "nuisance" collections worth less than $100. If you do the same, however, fines and interest will increase and the amount due keeps growing. Not all lenders use the latest scores, though, and lenders who pull up your credit report will still see the missed payments even if they don't affect your score.
You may request a free credit report from each of the three credit bureaus once a year. If you spread out the requests, you'll get a report every four months. The request can be posted at AnnualCreditReport.com (not to be confused with other websites bearing similar names). When you get the report, look for accounts with a balance that you don't recognize or for any unexpected red marks in your payment history. CreditCards.com provides a sample credit report with explanations for each section. Incorrect information must be removed or changed within 30 days of the initial request.
Only the latest credit score calculations by FICO and VantageScore ignore old collections accounts once they've been paid in full. Not all lenders use the latest scoring systems, so your payment arrears may still have some effect. As the newest scoring systems become more widely accepted, it's all the more important to pay off old debts.
Don't bother subscribing to a fee-based service that checks and monitors credit. There are many tools that let you check your credit score for free, including credit card issuers such as Discover and Barclaycard and free online apps such as Credit Karma and Credit Sesame. Use these tools to keep an eye on your credit score and any unusual activity. Some will even send alerts when bills are due or a new credit line has been taken out in your name.
Some debts originate from places that don't actually loan money, such as hospitals, and unpaid bills are passed on to collection agencies. After trying to collect the money, the agencies often report the missed payments to the credit bureaus, often after 90 to 180 days. If you believe you've been contacted in error about an outstanding bill, dispute the debt within 30 days. The Consumer Finance Protection Bureau provides a sample letter to use as a template.
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