4/26/2013 5:00 PM ET|
The debt collector who wanted $8.97
Debt collection is a big business, and companies are looking for any advantage they can get. Even if you owe just a few dollars, pay up.
We recently received a question from a reader who is looking for help with a past due movie rental that went to collections:
Today I received a letter in the mail from a collection agency stating that a DVD I rented from Family Video (probably 5 years ago) has gone to collections. The total that I owe is $8.97. Am I going to get a bad credit score for an unpaid bill of $8.97?! Help would be greatly appreciated.
The debt collection industry has grown into a multi-billion dollar business, and in order to stay competitive and profitable, collection companies are buying collection account portfolios from almost any company that’s willing to sell them or commission them to collect on their behalf. This includes credit card issuers, auto and mortgage lenders, cell phone companies, utility companies (cable, Internet, water, etc.), public libraries, gyms — and even video stores, as evidenced in your case.
A few years ago, these types of low dollar collections made headlines when a number of people began receiving collections for old, unpaid library fines that had been turned over to collections and reported in their credit reports. Yes, even minor past-due debts can turn into collections, regardless of how minor the amount. It’s something we should all be aware of.
If you find that you owe a small debt that seems trivial or insignificant and you’re on the fence about paying, it’s better to pay it than risk the chance of it turning into a collection and potentially hurting your credit down the road. No one wants to deal with the hassle of a collection, and it’s important to remember that a forgotten movie rental can happen to any of us.
Will a $9 collection hurt your credit?
The short answer here is: It depends. If the collection agency reports the collection to the credit bureaus, the answer is, yes, it will most likely have a significant impact and hurt your credit score. When it comes to collection accounts, the amount of the collection has no direct impact on your credit score. It’s the fact that the account made it to collection status that matters. This means a collection of $8 is just as damaging as a collection of $5,000 — with two exceptions.
Exceptions to the rule: FICO8 & VantageScore 3.0
In late 2008/early 2009, FICO made several significant updates to the FICO credit score model, including how low dollar collections were factored in the score calculation. In the FICO8 model, collection accounts less than $100 are excluded from the calculation. This means an $8 collection would have no impact on your credit score. It’s important to understand that this is only the case with the FICO8 version of the FICO score. And although lender adoption of FICO8 continues to grow, many lenders are still using older versions of the model. You also have to consider that some lenders may not use the FICO score at all — many do, but some do not.
Some lenders may use VantageScore 3.0, the newest version of the VantageScore model. This model doesn’t factor in any collection accounts that have been paid or settled. So, if you pay the $9 collection account, it won’t impact your new VantageScore 3.0.
How to respond to a collection letter
If you receive a collection letter in the mail, it’s important that you address the collection as quickly as possible. If you think the debt might not be yours or you don’t agree that you owe the debt, you only have 30 days to dispute the collection and request that the debt be validated.
If the collector is unable to validate the debt by providing written proof that the debt belongs to you and that you do in fact owe it, they have no grounds for pursuing the collection and must stop all further collection attempts. If they don’t, they will be in direct violation of the Fair Debt Collection Practices Act.
If the debt is valid and you owe it, it’s best to pay it. For higher dollar collections, we’d normally suggest negotiating a settlement over paying the full amount, but there’s not much room for negotiation with an $8 debt.
It would be worth contacting the collection company directly to find out if they plan to report the collection. Order copies of your credit reports from AnnualCreditReport.com to confirm whether or not the collection has been reported yet. You can also monitor your credit score every month to ensure it isn’t reported using the free Credit Report Card.
If the collection agency has not yet reported the collection, it may be in your best interest to go ahead and pay the $8 rather than going through the hassle of disputing or validating the debt.
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Thinking of things worse than debt collectors, politicians, and the credit bureaus,
I only came up with three...
Murderers, rapists, and child molesters.
Screw 'em...screw 'em all !!!
I get calls over a $19 debt from years ago. Long story, but I was ripped off by a phone company. It's ridiculous the way they pursue these things.
I could pay it, but just to piss them off I won't, ever. They can keep calling, I let it go to voicemail or just answer the call and disconnect immediately. As Someone says, they are the "scum of the earth".
I don't borrow money. Pay everything in cash so kiss my stash!
I don't give a hoot about any credit agency.
When Hollywood Video went out of business, their past customers were getting these same kind of notices; many were bogus and some as old as 5 and 6 years old. A lawsuit was filed by the Attorney General and the settlement affects all 50 states. My son received one of those bogus letters and he wrote a letter demanding proof of the debt. He never heard from them again. Here's the article:
If you really owe it pay the $8 before the SOB's add on court costs and attorney's fees. As for credit ratings; I decided not to play 'carrot and stick' with these F*ers anymore.
Would they do anything ? No. And this $500 account nearly caused us to lose our loan on a $675,000 house. So consumer beware of the "great" deals @ Macy's and be forewarned of their
utter lack of customer service & disregard of causing clients credit damage.
The purpose of the credit score is supposed to reflect not paying bills and debts as you agreed to.
IF this is legitimate shouldn't your credit score reflect this?
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