Late fees inflate balance of forgotten card

Opening Credits columnist Eric Sandberg
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

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Question for the expert 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 

Answer for the expert Dear 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 outstanding.

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 careless. 

See related: FICO's 5 factors: The components of a FICO credit score

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Updated: 03-18-2019