Surprise! Unexpected items can appear on a credit report
Library fines among obscure items that come back and haunt you
Hoping to keep your credit score up? You'll not only want to stay current with your credit card bills, mortgage payments and student loans -- you may also need to pay any outstanding library fines.
Unexpected items that can appear on your credit report
Some libraries are among the unexpected lenders that share your payment history with the credit bureaus, sometimes known as consumer reporting agencies. With an increasing number of businesses and organizations sharing data, a more complete snapshot of your overall payment history than ever before may now appear on your credit report. That extra data on your report could potentially influence whether lenders extend you credit and how much interest they charge you for loans, even if it doesn't actually affect your credit score.
"With increasing frequency, more and more types of business that extend credit to consumers in one form or another are reporting on the payment history of those consumers and are also relying upon consumer credit information and other data sources to inform their decisions to extend credit/services as well," says Steven Katz, spokesman for credit bureau TransUnion.
Municipal fines and fees, cellphone costs, child support payments, utility bills and health care debt can all show up. "It is a wide field for what creditors can and do report to the CRAs," says Valerie Hayes, corporate counsel for credit collection professionals association ACA International.
Worth the effort and expense?
Any of the above-mentioned creditors can report you to a credit reporting agency directly, Hayes says. Whether they do report depends on two main factors: the size of the debt and whether the business has the resources to deal with delinquencies on its own.
"Most of the time it will depend on the amount of the underlying debt," Hayes says, since it may not be worth the time, effort and expense to go after a borrower who only owes a small amount. "It will depend also on whether the creditor has the resources or staff to collect on their own behalf," she says.
If the debt is sizable enough to warrant collecting, but the lender is not equipped to retrieve it, a third-party collection agency may be called in, says Terry W. Clemans, executive director of the National Credit Reporting Association, a national trade organization of consumer reporting agencies. For their efforts, debt collectors generally receive either a flat fee or a percentage of the debt, so lenders must first decide that the overall value of the outstanding debt is worth sharing.
Municipal payments, library fines
Whether they do it themselves or enlist help, more businesses and organizations are choosing to report their customers, and not just about late car or mortgage payments. For example, your city or town may be getting in on the credit reporting act. Hayes, ACA's corporate counsel, says she has heard anecdotal reports suggesting it's becoming increasingly common for municipalities to report unpaid fines -- like parking and speeding tickets -- directly to the credit bureaus. Hayes says putting a black mark on the consumer's score can act as a powerful tool to guarantee fines get paid. In other cases, municipalities may rely on a collection agency to recoup funds they are owed.
Moving violations aren't the only unpaid city costs that could hurt a credit score, however. Neglecting to pay a library fine could impact your ability to borrow more than just books. In some cases, the ACA's Hayes says libraries will report unpaid fines to a credit bureau. In other cases, fines get turned over to a collection agency which may eventually share their collection data with a credit bureau. At least one collection business focuses on the library niche. Indiana-based Unique Management Services Inc. performs material recovery service for about 850 public libraries in the United States, according to Kenes Bowling, Unique's manager of customer development. "A paid library fine has zero impact on a credit score," Bowling says. As for delinquent library fines, "if it's unpaid, it shows as an open account" and could impact the borrower's credit score, he says.
Before reporting them to credit bureaus, Unique provides library patrons with payment reminders via post and phone, a process Unique has dubbed "Gentle Nudge."
"The very earliest we would credit report any account is 120 days after we receive it," says Unique's website. "Patrons are credit reported only as a last resort."
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For those borrowers who are willing to break library rules, be warned. "As much as someone may scoff at seeing a library fine on your credit report, it can really become part of your overall credit composite," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling (NFCC). According to Fair Isaac, unpaid library debts reported by collections agencies could initially appear as a collections account on a borrower's credit report. "The FICO scoring model regards collections accounts as serious delinquencies, so they typically have a significant impact on a person's score, based on the collection account's recency, the existence of any other delinquent accounts on the person's credit report and what other credit information is also on the credit report," says Craig Watts, public affairs manager for Fair Isaac.
Mobile phone payments may also get reported to the credit bureau. Whether the report gets made directly by the cellphone company depends on the provider. "There are some cellphone providers that have begun furnishing data" to the credit bureaus, says Stuart Pratt, president and CEO of the Washington, D.C.-based Consumer Data Industry Association, whose members include Equifax, Experian and TransUnion.
This makes sense, says the NFCC's Cunningham, because providing cellphone minutes can be seen as a form of lending. "In a sense, that's extending you credit. They provide you the minutes before you pay for them," she says.
Cellphone records can also influence a credit score. "If a cellphone account is reported to the credit bureau and appears on the person's credit report, then the FICO score will consider it as it would any other credit account," says Watts. Consistent, on-time cellphone payments can be particularly valuable to a consumer with a limited credit history, since they indicate responsible behavior to a lender. Simultaneously, mobile phone users' records of delinquency can haunt them.
"Some cellphone providers (e.g. AT&T) report cellphones as credit accounts. Therefore, when you don't pay, they are treated by the scoring models like any other late credit account," says David G. Chung, managing director of credit management software firm CreditXpert.
In other cases, reporting doesn't happen until the account becomes the responsibility of a third party. "Other cellphone providers (e.g. Sprint) do not report the cellphone account, so the unpaid bill will only appear on the credit report as a collection agency account once it has gotten to that late stage," Chung says.
When reached for comment, AT&T indicated that they do not publicly discuss their customer bill reporting information. As for Sprint, "we do not report customers who are in arrears to the credit agencies," says spokesman James Fisher. Following a grace period for delinquent Sprint consumers, the cellphone provider's reporting is left to the collection agencies, Fisher says.
Still, the appearance of cellphone information on a credit report is still a relatively recent development and continues to evolve, so stay tuned. "We're at the beginning of this reporting cycle and will see how it plays out over the next five years," Pratt says.
In accordance with a 2003 amendment to the Fair Credit Reporting Act, child support payments are treated like any other money owed -- both current and delinquent payments are shared with credit bureaus and noted on a credit report. However, the listing of those payments (or the lack thereof) on a credit report will not factor into the parent's FICO credit score. As outlined on its website, Fair Isaac does not consider items reported as "child/family support obligations" in calculation of the credit score.
Still, that doesn't mean lenders and employers won't see them. For example, if an employer pulls a job applicant's credit report, he or she would still be aware of the applicant's status as a "deadbeat dad"-- even if that child support delinquency doesn't lower his credit score.
Like cellphone bills, utility payments are less frequently reported to the credit bureaus. However, that may be changing. Some utilities around the country have begun to "pilot test" the reporting of data, Pratt says, so make sure those power and water bills get paid.
"If a utility service account is included on a person's credit report, the FICO score will consider it as it would any other credit account," says Fair Isaac's Watts.
While a doctor, hospital or medical treatment center won't report you to a credit bureau, a third-party collection agency may. "Medical debt only appears once it becomes a collection agency account," Chung says.
To protect the patient's privacy, many details of a medical debt do not appear on a credit report. The name of the doctor or hospital is coded, stemming from a 2003 amendment to the Fair Credit Reporting Act in conjunction with the Health Insurance Portability and Accountability Act enacted by Congress in 1996, which in part addresses the security and privacy of health data. "The original creditor name is blanked or changed to read as 'MEDICAL' because of HIPAA," says Chung. That name change would protect a consumer whose debt was owed to a known facility like the Betty Ford Clinic, for example, since its appearance on a credit report could reveal a debtor's treatment for drug or alcohol addiction.
Also, in rare cases, Fido could take a bite out of your FICO, since your pet's health care costs could show up on your credit report if you neglect to pay his or her veterinary bills.
Other unusual credit report items could also impact your ability to borrow. Legal judgments against you could be listed on a credit report, such as when your homeowners association takes you to court for unpaid dues. Separately, debts owed to mom-and-pop stores could appear if Mom and Pop work with a credit bureau and decide to report you. Meanwhile, "membership dues for any type of club you belong to could be reported" as well, says the ACA's Hayes.
A constantly evolving process
There are changes under way to how such unusual items can impact a credit score. "On current and previous versions of the FICO model in use by the credit reporting agencies, the amount of the collections account is largely irrelevant to the model's calculations," says Fair Isaac's Watts. "What matters is the fact -- assuming the collections account information as reported is accurate -- that the borrower has failed to a significant degree to pay the obligation on time. That failure can be highly useful in mathematical models designed to predict future credit risk."
However, small debts that have gone delinquent will soon be forgiven -- at least by FICO. "One change we are making to the FICO scoring model in our newest update, FICO 08, will cause the model to ignore any collections account with an outstanding balance of less than $100," Watts says.
Luckily for delinquent borrowers, not all lenders view past mistakes in the same way. Consumers should shop around for the best terms, says the CDIA's Pratt. When it comes to items on a credit report and the score itself, "every lender is going to look at that same three digit number and think differently," Pratt says.
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