Don’t forget to pay your parking tickets. Or those late library fees. You may not take these bills seriously, but you should. If left unpaid, they can hurt your credit score.
Why? Strapped for cash, many municipalities around the country have contracted with collection agencies in an effort to get people to pay up. And once your bill is turned over to one of these organizations, watch out: Credit-reporting agencies (such as Equifax, Experian, and TransUnion) may be alerted, and “your score will fall regardless of how small the fine is,” says Anthony Sprauve, a spokesperson for FICO, the credit-scoring agency.
If you have a relatively high FICO score (between 710 and 780), your score could be docked up to 100 to 125 points. If your score is lower—say, around 680—it may be reduced by 45 to 65 points. The problem isn’t short-term, either. The blemish can stay on your credit report for up to seven years.
If your score drops, your credit-card interest rates may increase. It can also hurt your chances of qualifying for a loan. The takeaway: Settle your debts now if you have any. And if an infraction has already been reported to a collection agency? “The best thing you can do from that point on is to pay all your bills before the due date,” says Sprauve. Over time your credit score will inch back up.