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.
More from Credit.com:
VIDEO ON MSN MONEY
I say if you want to collect this money, go door to door, do not harass people on the phone. Of course there are the idiots who keep calling the wrong phone #. These are the ones who need to be punched in the face.
I sent them a letter demanding evidence that the debt existed and didn't hear back for a few months. When I did the letter had a completely different date and they still refused to acknowledge that the debt didn't exist or the ridiculousness of waiting so many years to send an initial bill.
I'll have to file suit against them as they're holding my college records ransom.
IF YOU OWE THE MONEY PAY UP. This is what's wrong with this country, you think you can just walk away when you owe a debt. That is what caused the real estate market to create the problems we have today. Some people should not be allowed to have any credit, the one's that have good credit wind up paying for the one's that walks away.
This whole credit system stinks, if you can't repay don't give the them credit.
what is more important is gay marriage, re-writing the Constition, amnysty for non-white people who break the law....
just pay your'e bills
Depends on what the statute of limitations is in your state, Jillian. In most states, it's seven years; because of mining claims, you'll find it is three years in states like Nevada and California. If the statute of limitations has run out on the debt, then don't worry about it.
This is a scam that is pulled by a lot of collection agencies: they buy debts for pennies on the dollar and then collect for the original amount of the debt plus interest. The know full well that many debts they manage are not enforceable. But you don't know that. And then you pay. Well, now you know.
Collection agencies are totally out of control. If you can keep a debt from going to one of them DO IT! Deal directly with the organization that holds the debt. DO ANYTHING you can to keep the debt from getting into the hands of these scumbags.
pay it before they add on more fees - and they will ruin your credit - and the longer you wait, the worst it gets - pay the $9 and be done with it
Second, the ONLY reason we call you is because YOU owe. You either didn't pay your cell phone bill, or your electric bill or your loan payment. You agreed to the terms with some company, screwed them over and refuse to pay because you feel like you're in the right. I can understand that. But facts are facts. If you sign any type of contract or agreement, like a cell phone that has an early termination fee or something like that, then you have already agreed to pay the balance. Now, you just don't want to.
Easiest way to deal with people like me? TALK to me! Even if you don't want to pay me. I don't care. There are a million other people on the phone who I can get a payment from. But if you simply tell me why you don't want to pay, it can actually help you. But hanging up or being rude on the phone? All that gets you are more phone calls. We don't just magically vanish because you hung up, lol.
Just talk to the collector. If you owe the money, ask for a settlement and get out of debt. If you don't think you owe it, tell us to file a dispute. Either way, your life becomes easier and you get less phone calls.
DEBT COLLECTORS ARE SCUM OF THE EARTH!. When they are own and operated by local attorney's then they become imbecile from scum of the earth. I still get calls from accounts I owned 10 or 20 years ago, the banks charge them off and write it off from their taxes, or the feds give them money to recover the bad debt. Then they sell it to third party collectors for pennies. All of a sudden a $ 100 debt become $2000 or $ 5000 and keep adding... Big Business thriving on the sick, un/underemployed, or worse the helpless elderly.
Some states like Minnesota have poor laws to protect consumers from these monster predators. Attorney General's office is overwhelmed with thousands of complaints, but her office is really trying to do something, talk with your legislatures, the laws need to be re-written.
People are saying that debt collectors are horrible and other mean things. Sure, some of the people that call you to collect can be total a$$es. These people are not necessarily the brightest stars in the sky because if they were they wouldn't take that job. It is probably the only job they can get. Also, I am sure that some companies are bad too. It happens in every industry.
That being said, if you owe a debt, you owe a debt. Grow up and take responsibility for what you need to do. Many can be negotiated if you just call the company. Medical bills are very easy to negotiate, especially if you are nearly broke. I called one, in 5 minutes had someone on the phone, explained how I couldn't afford the whole bill (3 separate bills from the same company) and why, she put me on hold for 5 minutes, came back and told me that if I paid 1/3 of it right now, all of the bill would go away. I paid it and never got a bill or collection notice for those bills again. Problem solved. If you are just slightly over your earning value for Medicaid and got a big bill for an emergency (in my case a kidney stone), go to the hospital billing center with your tax returns, explain your case, they told me to apply for Medicaid and bring them the declined letter - they knew I would be declined - and they would take care of it. Never saw another bill for the $3,000+ they said I owed.
All I am saying is, grow up and take responsibility. If you know you owe the money, pay it or negotiate. If you know you don't owe it, then dispute it. I paid a bill a little at a time once, the same guy called monthly and always asked when I could give more (I owed $10,000 and paid a few hundred a month) and I always said he would get it when I had it. One month he called and he said "another $200", I said nope, $3,000. I swear I almost heard him hit the floor.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON CREDIT SCORES
A Fidelity study found that adult kids and their folks aren't on the same page when it comes to discussing finances.