Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
If a person in a foreign country receives a fine on the Metro for not buying a ticket, will his or her credit score be affected in his or her home country? – Heather
Had you asked this question prior to June 15, 2016, you might have received an answer that, yes, even a foreign transit fine could wind up on your U.S. credit reports and hurt your credit scores. You’ll soon see why this date matters.
Though you don’t seem like the kind of person who would ride the metro without paying, let’s say, for conversation purposes, that you are this person and that you live in the U.S.
Alternative debt reporting routes
Until recently, just about any kind of debt – from Metro fines to major medical bills – could be added to credit reports via a couple of alternate routes from the usual trade line reporting of cards and loans:
Using your hypothetical situation as an example, the foreign Metro transit agency could have first assigned the unpaid fine to a local collection agency that then determined your location as being in the U.S.
That collection agency might have then assigned the debt to a U.S. collection agency to contact you for payment and report the fine, along with any additional fees, as a collection account in your name to one or more of the three major credit bureaus – Experian, Equifax and TransUnion. There it would have remained on your credit reports for about seven years, whether paid or unpaid.
Continuing with your example, suppose that despite the collection agency’s repeated attempts to collect from you, the fine continued to go unpaid for an extended time. The collection agency then could have sued you in small claims court for the Metro fine plus related expenses.
If decided in the collection agency’s favor, a judgment would have been issued against you and filed with your county courthouse. There, as matter of public record, it would have become a derogatory item on your credit report for seven years from the date filed.
New rules in debt reporting
That was then. Fortunately for consumers, the days when collection agencies could report whatever and however they wanted are over. The 2015 National Consumer Assistance Plan, agreed to by the big three credit bureaus and 31 state attorneys general, changed the way such “nontraditional credit” debt affects your credit.
For consumers with unusual debts like yours, at least two major changes arising from the National Consumer Assistance Plan will keep Metro fines, traffic tickets and other debts not entered into willingly by the consumer off of credit reports:
1. As of June 15, 2016, collection agencies can no longer report debts not arising from a contract or agreement to pay.
This rule alone put a stop to the reporting of unpaid fines and fees from government agencies – foreign or domestic – along with traffic and parking tickets, and even library fines that, as collections, were known to lower credit scores by 100 points or more.
2. As of July 1, 2017, civil judgments (and tax liens) can no longer be added to a consumer’s credit report unless they include either a Social Security number or date of birth, in addition to the name and address. Millions of judgments and tax liens not meeting this requirement – the vast majority – have since been deleted from credit bureau files. This ban not only affects nontraditional credit debts such as Metro fines, but also judgments for charged-off credit card balances and any other unpaid debts in which the creditor was taken to court and lost.
Reporting medical bills
While on the subject of the National Consumer Assistance Plan and nontraditional credit debt, medical bills that make their way to credit reports as collection accounts are perhaps most affected by these credit reporting changes. If not already in force, these changes affecting the reporting of medical debt will take effect on Sept. 15, 2017:
- For the first time, collection agencies must report the identity of the original creditor and provide monthly updates to the credit bureaus. This should do a better job of reflecting recent payments and other account changes.
- To prevent nondelinquent medical bills from unfairly lowering credit scores, collection agencies, the most common furnisher of medical debt on credit reports, can no longer report unpaid bills to the credit bureaus until they reach at least 180 days old.
- In another plus for consumers with medical debt, collection agencies must now delete medical collections from credit bureau files once they have been paid by insurance.
By now, any fears of this Metro fine damaging your credit in any way should be relieved, although it hasn’t been very long since we’ve been able to say so with any certainty.
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