Late fees inflate balance of forgotten card
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
My daughter opened a credit
card in the store and charged some items that day. We were then hit with
Hurricane Sandy and honestly forgot all about it.
A couple of months passed and
after I went to that store, I reminded my daughter that we never got the card or
a statement. I have contacted the company several times now and because the address
matches and they don't have returned mail, they are holding her responsible for
$300, which includes I think five late fees. I'm trying to dispute this, but
don't know how. The credit card company isn't really helpful and they sent it
to a collection agency. The collection agency was worse.
The company holding
the card told me if she pays $220 of the $300 right away, they may consider
waiving one late fee. However, she is still responsible for the $300 and there
is no guarantee they will even waive the fee. I don't even think the entire
bill was more than $100. Please tell us what steps we should take to help her
out. This seems very unfair. I don't want her credit affected. I would have
just paid it for her, but I don't have the funds at this time as I'm still
trying to repair my home from the storm. -- DJ
I believe that when your daughter
activated and shopped with the store card, she fully intended on paying her
bill. Then the storm hit, and more immediate needs took priority. Given the
chaos of the time, it's no surprise that she forgot about the account.
The credit issuer's memory, however,
remained intact. For them it was business as usual. If you look at it from
their perspective, it makes sense. The issuer upheld its end of the arrangement,
which was to let her borrow money so she could have what she wanted
immediately, but pay for it later. In exchange, she was to send at least the
minimum payment by the due date to keep the account in good standing. And, as
per the contract, they added late fees (plus interest) to the balance each time
she missed a payment.
It appears that the company followed
its protocol, which was to send statements to the address on file. They
couldn't find her, but she could have found them. All retailers have websites
and publish a way to reach their credit department. I know it sounds cold, but
it was her duty to deal with that debt.
When the creditor never heard back from
her, it had to do something with the delinquent balance. They could have taken
her to court (which would have been a little silly, because the amount owed was
so small) or send it to a collection agency.
I understand that you want your child
to avoid credit damage, but I'm afraid that has already happened. It began with
her first skipped billing cycle, and grew increasingly worse from there. Each
missed payment was recorded on her credit report, until it finally showed that
the store got rid of it and sold it to a third-party collector. Payment history
is the most important factor in a FICO score, so this negative progression has
certainly taken a toll on her credit rating.
The good news is that the debt is only
$300. I recommend that your daughter contact the collection agency and pay it
all right away. (Notice how I said she and not you should do this? Unless you
co-signed the card, it's her account, and thus her responsibility.) If she
doesn't have enough cash to pay in full, she may request an installment plan. The
sooner she gets rid of the balance, the faster her credit will recover. It won't erase the
past, but a satisfied obligation always looks better than one that's
I also suggest she write a brief (it must be 100 words or fewer) explanation of what happened, and add it to her credit reports.
Though the note won't be factored into her credit scores, anyone who pulls her
reports will see it. Without her having to say a word, they'll know that she
was busy contending with the fallout from Sandy's wrath, and not just being
See related: FICO's 5 factors: The components of a FICO credit score
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: April 17, 2013