Consumers normally think of credit cards, mortgage and auto payments and collection accounts comprising the information on credit reports.
But as more businesses, municipalities and utility companies extend credit to consumers those businesses can report payment history as well to the credit reporting agencies.
Small, unpaid bills can surprisingly chip away at your credit score. The business you owe may not report directly to the credit bureaus but if they hire a collection agency, that collection agency could end up on your credit report for 7 years. Here are 5 little known items that can appear on your credit report:
1. Municipalities – Parking and Speeding Tickets
It has become very common for municipalities to report unpaid parking and moving violations directly to the credit bureaus. Increasingly, cities and towns are entering the credit arena and reporting unpaid fines directly to the credit bureaus. While it is not uncommon for municipalities to go after consumers for unpaid fines, the practice is fairly new as municipalities once relied on collection agencies to recover fines.
2. Library Fines
Watch out for those overdue books and library fines, they just may become part of your credit history. Neglecting a library fine could affect your ability to borrow more than books as some libraries are reporting unpaid fines to the credit bureaus. In some instances libraries are turning over unpaid library fines to collection agencies which in turn, report consumers to credit bureaus. A library fine reported by a collection agency should be taken seriously. FICO, the most widely used credit scoring model, regards recent collection accounts as very serious delinquencies, regardless the type or amount of the collection account.
3. Cell Phone Payments
Some cell phone companies have begun providing information to the credit bureaus about their customers. In a roundabout way, cell phone companies extend credit to customers by providing minutes before payment is required. Cell phone accounts are like credit accounts when reported to the credit bureaus. A consumer’s payment history, on-time or late, can be reported and calculated in your overall credit score. Other cell phone companies leave the credit reporting to a third party, mainly a collection agency. If you have an unpaid cell phone account, a collection agency can report the delinquent account to the credit bureaus.
4. Child support
The Fair Credit Reporting Act treats unpaid child support payments like any other money owed. Current and delinquent child support payments are reported to credit bureaus. The good news is the FICO scoring model does not consider items reported as “child/family support obligations” in calculating a credit score. However, credit card companies, lenders, insurance companies, employers and any other entity that may pull your credit report can see the child support entry; whether it is current or delinquent.
Utility companies extend credit to their customers by providing services up front, typically without a deposit required. Utility payments are not commonly reported to credit bureaus but that may change soon as some utility companies have started to “test” reporting payment information and other data to the credit bureaus. FICO will consider utility accounts as credit accounts in calculating credit scores.
The FICO scoring model is being tweaked to lessen the impact of these items on a credit score. The issue with these little known items such as a library fine is that they can be small amounts. But when a small outstanding debt is turned over to a collection agency and the collection agency reports the small amount, the credit scoring model only takes into consideration that it is a collection account. Collection accounts are considered serious delinquencies on a consumer’s credit report, despite the amount.
FICO has updated its scoring model to FICO8. As more banks and lenders begin to use the updated version (FICO8), small delinquent debts will not have an impact on credit scores. The FICO 08 scoring model will ignore collection accounts with an unpaid balance of less than $100. The problem is getting banks, lenders and credit card companies to update their systems to the FICO8 version.
Big credit issuers move slowly and a large percentage of their business continues to be based on the old FICO scoring version. It may take time for them to retool their systems to the newest version of FICO.
In fact, there are several versions of FICO scores used by lenders; for instance: Equifax has Beacon 5.0 (FICO 2005) and Beacon 9.0 (which is FICO08); Transunion has TU98, TU04 and FICO® Risk Score, Classic 08 (which is FICO08) and Experian has FICO® Risk Model v08 with several versions in use by lenders. Then there are non-traditional industry enhanced credit scores such as auto-enhanced, mortgage-enhances and bankcard-enhanced all use different versions of FICO scores tailored to their specific needs.
Not all businesses, municipalities and utility companies will report consumers directly to the credit bureaus. It really depends on the amount of the debt and the resources of the business to deal with delinquent accounts without a third party such as a collection agency.
If a business deems an outstanding debt worth the time and effort to go after a consumer but does not have the internal staff to do so, it will enlist the help of a collection agency. And consumers can almost be assured a collection agency will report the debt if it remains unpaid.