Small mistake: You overlook old library fines or parking tickets.
Big complication: To raise revenue, many U.S. libraries and municipalities are turning unpaid debts over to collection agencies. Once an agency takes over your debt, even if it is only $20, you can count on a big dent in your credit score―100 points or more, according to Craig Watts, a spokesperson for Fair Isaac Corp., the financial-management company that developed the FICO credit score, a number that determines a borrower’s credit history.
Cut your losses: Take care of fines and tickets as soon as you’re aware of them, and make sure the payments clear your bank account. If they aren’t received and processed by the library or the city agency, your account will be marked delinquent. Also, check your credit report (it’s free) at least once a year (annualcreditreport.com). If you find a debt there that isn’t yours, follow the credit-reporting agency’s steps to dispute the charge.
Small mistake: You carry even a small credit-card balance.
Big complication: If you pay only the minimum monthly payment on a $2,200 balance (the amount the average consumer carries), it could take you 12 years to clear the card. In that time, you will have paid an additional $1,968 in interest (calculated at a modest 14 percent.)
Cut your losses: If you’re already carrying a balance, look for ways to step up payments. If that’s not possible, take out a personal bank or credit-union loan to pay off the card, suggests Kathryn Nusbaum, managing director of Middle America Planning, a financial-advisory firm in Pittsburgh. Some personal loans are not secured by an asset (so if you default, you don’t lose your car, say), and their rates tend to be lower than those for credit cards.
Small mistake: You miss a mortgage payment or send it in late.
Big complication: “One late mortgage payment can knock 100 points off your credit score overnight, affecting your ability to get the best interest rates on car loans, credit cards, and the like,” says Watts.
Cut your losses: “If you’re unable to make your payment, call your lender right away,” says April Lewis-Parks, director of education for Consolidated Credit Counseling Services, a nonprofit company based in Fort Lauderdale that offers debt-management programs throughout the United States. “They have loss-mitigation and hardship departments that may work out another payment arrangement for you for six months.”