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 had a debt collector call me about an ambulance bill (I tried to refuse the help, didn't need it, too bad for me I was forced to and now have about 4,000 dollars to pay) Anyway, she was nothing but a liar. Told me the state that I live in is a community property state, and that my husband's wages could be garnished, when I know for a FACT that it is not. Collection callers, don't lie to us, and try to SCARE us, because we are not idiots. We know you get commissions.
Return to Sender ...
A few years ago I was caring for a 91 year old aunt who had no other relatives, and her resources had been completely exhausted by huge medical bills. Collection companies were sending torrents of nasty and threatening collection notices to her residence. I simply went to a custom stamp maker, and for 17.00 I had him fashion the official looking post office stamp of the red hand with pointed finger and the "not at this address, return to sender" text. It worked like magic, and the letters stopped ...case closed.
Peace to all ~
debt collection is a joke as the collectors do not know what they are doing as school loans like sally may a person signs as a co sign and the student is still in school and consolidate there loans.
Sally may turns it over to collection and it says that if they collect from the co signer they can still collect from the student. so they can collect 2 times and if you are a co signer on s/s they tell you that they are going to take away your s/s (that is against the law I believe ) but they still try it because the courts
will most likely let them .
"dont pay collection agencies. esp for older debts. if you do, the account is re-aged and it can damage your score even longer." The poster of this is correct. We had an issue with an alarm company. **I** voided the contract as they could not keep their own guidelines. 3 years later, 4 different collection agency later, I qualified for a zero% interest vechicle loan.
They all use scare tatics when they are in the wrong.
Unoriginal1, YOU ARE ABSOLUTELY RIGHT! Pay your bills! Didn't you get something? Then pay for it! Do you work for free? Why should businesses have to give you something that they incur costs for without you having to pay them for it? This is EXACTLY what is wrong with this country. No one is responsible for anything any more. Mortgages people took on that they couldn't afford is the mortgage companies' fault. Car loans people just quit paying is the car lenders' fault. If you lend someone money or goods or services they agree to pay YOU for and don't pay you, are you just ok with that? No, you are not. If your employer doesn't pay you this payday for the work you have done, you're going to be pissed. Grow up people and keep your promises! PAY YOUR BILLS! You gor the goods.
The Fair Debt Collection Practices Act and the Fair Credit Reporting Act are nearly toothless acts that offer very little protection to consumers. The industry is a joke. The abuses are rampant. And for a "score" that is so central to the consumer in transactions that are so heavily weighted in favor of the lender as to render the consumer virtually powerless -- the absence of thorough going regulation of the credit scoring industry and debt collection industry is ridiculous beyond belief. For a private industry to virtually dictate via stranglehold the economic capacity of a consumer to borrow - and there is no 'alternative' to force the 'market' to balance more in favor of the consumer - is absolutely ludicrous. Meanwhile, bank to bank credit free wheels and even finds more ways to fraudulently screw the consumer and crash markets (see LIBOR scandal) to the point of criminal behavior. It's insane.
The 'just pay your debt' folks on here are beyond clueless. Of course you should pay what you owe, but that's very frequently not the issue. A 9$ debt from 9 years ago is a) unenforceable b) very likely WRONG and c) may have been the result of an honest dispute of the debt back when it was allegedly incurred. But do the collectioneers have to mention the debt is unenforceable? NEEWWOOO!!! Do they have to prove up it was not the subject of a dispute? NEEEWWOOOO!!!! And does the average consumer know any of this? Do they even have recollection or copy of stuff from 9 years ago? NEEEWWWOOOO!!!
I agree, collection companies are the scum of the earth (right up there with many attorneys). To be fair many of the people the collection companies have to deal with are also the scum of the earth. The collection companies don’t know you and don’t care they just want to collect so they can get paid. I feel in many cases it is the company that hires the collection companies are many times cowards. They hire someone else to do their dirty work. In some cases they are doing this because they either don’t want to be associated with the dirty work or distance themselves from the maybe questionable charges.
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