'Nuisance' debt in collections under $100 may not hurt score

You'll face late fees, but newer scoring models ignore small unpaid debts

Speaking of Credit columnist Barry Paperno
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.

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Question Dear Speaking of Credit,
If I made a payment two days late on a store credit card, how bad will it affect my credit score, if the amount was less than $100? -- Noemi


Dear Noemi,
You should be happy to know that missing a payment due date by only a couple of days won't hurt your credit, although, despite the small amount, you may have picked up some late fees and finance charges.

You can be whacked with a late fees the moment the due date passes, but card-issuing banks generally follow a different procedure for escalating it to the next step -- reporting debt as late to credit bureaus. That's the step that causes your credit score to suffer. They'll wait, watching for at least a minimum payment from you, until more than 30 days have elapsed -- more than one full billing cycle -- before reporting it to the bureaus.

In such cases, the account will be reported as "30 days late" and be considered a late payment by the credit score. Should another unpaid billing cycle go by without payment, expect the credit report to show "60 days late" with worsening score consequences than during the previous month. The next stages of delinquency are 90 days, 120 days, and so on.

But I want to focus on the last part of your question, in which you mention the amount being less than $100. That adds a twist that not many people know about.

If your debt is just a couple days overdue, you don't have any worries about this, but should you ever find yourself with a small bad debt, know that the most current credit scoring models give consumers with small-balance collections a valuable break: They simply ignore any unpaid or paid collection account where the original debt was less than $100. FICO terms them "nuisance" debts and they are disregarded entirely in the scoring.

This consumer-friendly scoring feature is available in the latest formulas developed by both FICO (FICO Score 8, FICO Score 9) and VantageScore (3.0). FICO and VantageScore are the two scoring companies that essentially develop all of the credit scores used by U.S. lenders. The bad news, especially for mortgage applicants with small collections, is that while the credit card and auto lending industries have increasingly adopted these newer models for credit decision-making, the mortgage industry continues to rely on older FICO models that differentiate only slightly -- or often not at all -- between the largest and smallest collection debts.

Also, keep in mind that even when the scoring formula excludes a small collection, that negative item associated with late payment will continue to appear on a credit report for many years, so it may be considered by lenders in the growing number of alternative forms of credit evaluation that don't rely on either FICO or VantageScore.

Fortunately, your situation shouldn't require any need to know how credit scores treat delinquent debt. Still, the following guidelines can help answer any basic questions of how the timing of payments can help or hurt your credit scores and pocketbook:

Paying the bill ... Will enable you to ...
By the payment due date Avoid late charges and, if paid in full each month, interest.
After the due date, before 30 days late Keep the late payment off of your credit report and away from your credit score.
After 30 days late, before 60 days late Limit the score loss by incurring only a single 30-day late notation, thus avoiding increased damage from a 60 day late notation.

See related: Keeping a card balance to boost credit score is dumb advice, 5 ways to avoid (or deal with) late fees

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Updated: 01-21-2018