Small unpaid bills can hurt New York residents

According to Equifax, there are more than 200,000 accounts in collections for an outstanding debt of less than $100. Moreover, these little debts often go overlooked until it is time to purchase a car or apply for a mortgage. In many cases, these balances aren’t taken care of because the person who owes the money doesn’t even know about the debt.

This is because a creditor may not bother to contact a debtor over a small debt such as a $23 lab fee that hurt one man’s credit score because the creditor never contacted him about it. Instead, the statement was sent to an incorrect address and went into collections. While it may seem that a small debt won’t impact a person’s credit score, debts as little as $3 from an unpaid movie rental could be reported to credit agencies as long as it is done so in accordance with the Fair Debt Collection Practices Act.

These unpaid bills can hurt a person’s credit score because credit scoring models put the most weight on a person’s ability to pay his or her bills on time. Therefore, failing to pay a $3 overdue movie rental can hurt just as much as missing a car payment if it is reported to the credit agencies.

Anyone who has had their credit score or history impacted by an unpaid bill of less than $100 may wish to talk to a bankruptcy attorney. While a single account in collections may not necessitate an individual filing for bankruptcy, filing for Chapter 13 bankruptcy may allow a debtor to reorganize his or her debt in an effort to pay creditors in a timely manner. An attorney may be able to advise an individual as to the best way to resolve debt issues.

Source: FOX Business, “Small Debts Can Lead to Big Credit Score Problems”, Erica Sandberg, July 17, 2014