Unpaid Small Bills and Your Credit Score

A Facebook fan considering applying for a mortgage wanted to know how seriously her husband’s credit rating would be impacted by a court judgment for a small bill of just $109.00. Here’s what she needs to know – and you too, if you ever are facing court action concerning a debt.

A "public record" can do very serious damage to your credit rating, easily knocking down your credit score 100 points or more.

A “public record” — such as a bankruptcy, charge-off, repossession or court judgment against you — can do very serious damage to your credit rating, easily knocking down your credit score 100 points or more. In this instance, you have three options, all of which may be necessary to repair your spouse’s good credit. 1) You can dispute the information with the heating company. 2) You can also dispute the information with the credit bureaus (TransUnion, Equifax, and Experian) if necessary. Also, 3) You can contest this judgment with the court, on the basis that you were never properly served (i.e. never legally notified that you needed to appear in court). Start with the courts. See if they’ll dismiss the judgment on the grounds of improper service. If that gets you no where, go to the creditor and negotiate with them. As a final tactic, dispute the information with the credit bureaus. Two important points to note: It sounds like you’ve pulled your husband’s credit scores — perhaps his Vantage Scores, or some other credit scores, because FICO scores range from 300 to 850 points, and you’ve indicated your spouse’s scores were 839 and 714, after previously having been around 915. Get your FICO scores also to see what those are. The FICO scores are the ones mortgage lenders and other creditors most frequently use. Lastly, under FICO’s new credit scoring model, small bills of $100 or less will be disregarded when it comes to calculating your credit score. However, since the bill your husband allegedly owed was for $109, and since it turned into a judgment, it will still present a problem for him. One last-ditch effort might be to try to get the heating company to agree that the original bill was for less than $100. That way, even if it still shows up on your credit report, it won’t hurt your husband’s FICO credit score. This is assuming, of course, you also get that public record eliminated from his report. Good luck!

5 Tips if You’re Facing Court Action from a Debt Collector

 

 

 

Comic by Dan Gibson @ DestroyDebt.com

 

 

Creditors can sell your debt. When your debt is sold to collectors, some might use the threat of court action to try to intimidate you in order to get you to pay up.  

Technically, it is illegal for collectors or creditors to threaten court action if they do not intend to carry through with it.  Taking you to court is time consuming and expensive for them, and there is no guarantee it will result in the outcome the creditor wants.  So typically, a court action is a tactic to get you to pay up, or to obtain a default judgment against you if you don’t respond to a summons and complaint.

Here are 5 things you should know in case you are presented with a court action.

1) Answer a summons and complaint.  If a creditor serves you with a summons and complaint, not merely a letter saying you owe debt, then you must answer within a certain timeframe set by your state laws (perhaps 10, 20 or 30 days), in order to avoid a default judgment. I’ll speak more on how to answer a summons in the coming days.

2) Know the statute of limitations. There is a time limit on how long creditors have in which to try to obtain a judgment against you for the money you may owe them.  That “statute of limitations” varies by state and type of debt.  Typically, it is anywhere from 3 years to 10 years. A creditor can use the limits in your state or the state where they are located. They will often use the state with the longest statute of limitations, because it is obviously beneficial for them. Click here for a state-by-state list of limitations timeframes for debt. 

3) Credit bureaus limits are not the same as debt statute of limitations. Federal law typically requires credit bureaus to drop negative information after about seven years from the date of your first missed payment. (There are exceptions, such as bankruptcies can stay on for 10 years, and tax liens can stay on for longer). If you live in a state with a 3-year statute of limitations on legal collection of debt, it will still show up on your credit report.  If live in a state that allows judgments to be entered for 10 years, it is possible the debt came off your credit report after 6 years.  So do not use your credit report to help you determine if you owe debt. You can use it, however, to check to see when the creditor first considered you to be delinquent.

4) Statute of limitations can start over. Please note that if you enter a payment agreement, make a payment — even a partial payment—, or promise to make a payment, you will restart the statute of limitations to day one.

5) Show up to court.  If you are sued, make sure you or legal representation on your behalf appear in court.  If you don’t, the court can issue a judgment against you for the full amount the creditor requests.  Even if you make a settlement agreement prior to court, don’t trust the debtor to notify the court that it has been settled. Appear in court for any date that was set and let the judge or trustee tell you to go home.

The Future of Credit Scoring

Click image to see a clip from my appearance on ABC News discussing “secret” credit scores you need to know!

The Future of Credit Scoring

Did you know that there are competitors emerging to the FICO score? Click on this image to learn more.