How an Overdue Library Book Can Hurt Your Credit Score
By Gerri Detweiler
"Mom," my daughter said as she stood by my desk recently waiting for one of her homework assignments to print from my computer, "Did you pay this bill? It was due Oct. 4."
She asked me this on Oct. 14. And no, I hadn't paid it.
The bill she was talking about was a "toll by plate" bill for $7.50. In some parts of Florida tollbooths have disappeared and drivers either pay using a Sunpass or get a bill like I did when a picture of their license plate is captured on one of these roads.
To be fair, I had tried to pay online shortly after I received the invoice, but ran into a glitch. It was a weekend, so I set it aside, intending to call and resolve the problem by phone, but then I got busy and forgot about it.
The day after my daughter pointed out my oversight, I waited on hold for someone to help me resolve the problems I was having paying online. As I did, I read the ominous warning printed on the front of the invoice:
Please pay the total amount due by the due date listed to prevent incurring additional fees, potential citations, or assignment of such transactions to a collection agent. Past due transactions from a previous document may be sent to a collections agent prior to the due date of this document.
Collections can do serious damage to your credit, as I've written about in the past.
Unpaid tolls are just one example of seemingly harmless items that can have a long-term effect on your credit. Here are four more.
Libraries don't report directly to credit reporting agencies. However, an increasing number of libraries will turn over unpaid balances to collection agencies, which in turn may report those balances to the major credit reporting agencies. For example, the New York Public Library's policy says:
...borrowers with fines or fees of $50 or more are subject to contact from a collection agency. A non-negotiable collection fee will be applied to the account of any borrower who reaches this threshold.
A collection account can lower your credit score by 25, 50 or even 100 points or more when it shows up on your credit report. Even worse, it can remain on your credit report for up to seven years plus 180 days from the date the bill was due to the original creditor, which means it can affect your credit scores for years to come.
There are approximately 48,500 "primary" self storage facilities in the United States as of year-end 2012, according to the Self Storage Industry Association. That's a lot of stuff in storage.
What happens if you decide you no longer can afford the fees for your storage unit? Similar to what you see on A&E's "Storage Wars" (though probably a lot less exciting), the contents of your unit will likely be auctioned off. But that doesn't mean you are off the hook. The owner of the facility isn't typically obligated to accept whatever your stuff is worth as payment in full. Instead, any remaining balance will be turned over to a collection agency.
So you'll no longer have your stuff, but instead have a constant reminder on your credit reports that you maybe should have held a garage sale instead of putting your things in storage. Ouch.
I am not talking here about the fact that closing a credit card can impact your credit score. While that's true, here I am talking about the fact that when you close an account you may inadvertently set yourself up for trouble down the road.
Again, I speak from experience. When I moved from Virginia to Florida a number of years ago, I closed out my bank account. However, the teller neglected to tell me that I needed to separately close the overdraft line of credit associated with my checking account. Over a year later, I was notified by a collection agency of a debt from my bank. Seems there was a $50 annual fee on that line of credit that was assessed after my account was closed, and went unpaid. Fortunately the bank worked with me to clear it up (and get it removed from my credit record) but not before my credit scores took a nosedive.
When you close an account of any kind, pay careful attention to make sure you receive and pay any final bill that may remain. If you close a credit card, go through a year's worth of statements to make sure there aren't any recurring charges that you need to switch over to a new payment method as well.
Renting a Car
Another true story: While I was driving a rental car back to the airport in Austin, Texas, a few years ago, a driver rear-ended me on the highway. After hitting me, she pulled to the side of the road, but sped off as soon as I pulled over.
Fortunately, I had purchased collision damage coverage from the rental agency. All I had to do was fill out some simple paperwork, turn in my keys and the matter was closed.
This isn't an advertisement for rental car coverage, which is often pricey. Instead, it is a warning to make sure you get adequate coverage from whatever sources you piece together: your credit card coverage, your personal auto insurance, and/or the coverage you are offered when you rent the vehicle. Otherwise, while the insurance agencies and the rental car company argue over who pays for what, you may find you're stuck with bills that have been sent to collections.
There's another way that renting a car can hurt your credit: inquiries. A few rental car companies will check your credit if you use a debit card to reserve your car. Even if you plan to pay for your rental with a debit card, you may want to reserve it with a credit card to avoid this, especially if you travel often and rent cars frequently.
Of course you won't know that these kinds of everyday incidents have affected your credit unless you stay on top of it. Get your free annual credit reports and use a tool like Credit.com's free Credit Report Card to monitor your credit scores. If something unusual does show up, you can investigate immediately.
Are there other seemingly harmless things that have hurt your credit? Share them here.