An Overdue Book Can Ruin Your Credit Score. Who would have thought?

As cities work to scrape up every little bit of revenue, they’re now going after library fines and overdue parking tickets.

How are they going after this money? With collection agencies.

Is it working? The Wall Street Journal says yes:

A handful of cities, including San Diego and Chicago, have worked with collection agencies since the late 1990s. But the trend is spreading rapidly around the country because of the popularity of identity theft. Strapped local governments are looking for creative ways to boost revenue without raising taxes and fees. Over the past few years, local governments in places including Seattle; Anchorage, Alaska; Austin, Texas; and Florida’s Miami-Dade County have contracted with private agencies to collect late parking tickets and court fees. In New York City, Baltimore and Dallas, libraries use private collection firms to recover fines. New York State recently hired a collection company to pursue overdue E-ZPass toll bills.

I learned about method of identity theft in 2005 from an audience member of one of my seminars. She had her purse stolen. As an out of the box thinker she even had a photocopy inventory of everything in her purse just in case. So needless to say she was prepared. She called and closed all of the accounts that would be potentially affected. Or so she thought...

Library Card Identity Theft

It never occurred to her to suspend her library card privileges. And how easy is it to get a library card? That was the specialty of the criminal who stole her purse. He knew the window of opportunity would be small to 'joy-ride' on her credit cards' so he raped and pillaged the public library system of its pricey titles. He knew exactly which books would fetch the highest prices on eBay. Of course she found out the hard way when the debt of unreturned library books turned into a collection issue and negatively affected her credit score.

While shaking down citizens over small debts might sound petty, hundreds of cities around the country are owed millions of dollars in unpaid fines. Since 1997, when Chicago began using a collection agency to track down unpaid parking fines, ticket revenue has more than doubled, rising from $68 million to $154 million last year. (The total number of parking tickets issued has dropped slightly over the period.) Since the Omaha, Neb., public-library system hired a private collection company in March, it has collected more than $40,000 in fines and recovered about $75,000 worth of overdue books and materials.

Yep, they’re bringing in the big boys in order to collect on millions of dollars of small fines that many of you have ignored… until now. If you decide to ignore a collection agency, that $20 library fine could show up as a collection account on your credit report.

How will single collection account for a stupid small overdue fine affect your credit score? It could lower it by as much as 100 points. Ouch! That’s gonna hurt.

It appears that Equifax is the sole credit bureau that feels this may be a bit of overkill. Also from the Wall Street Journal:

Equifax Inc., the third credit bureau, makes an effort to weed out small charges like library books and parking violations from credit files. The company says it is not fair to include them in credit reports since municipal fines are reported unevenly around the country.

Well, that won’t help too much because you never know which bureau a potential creditor will use to look at your credit.

So what should you do?

• Pay your fines, no matter how small. Your city could start using a collection agency at any time. Your fines - even years old - could then be sent to collections.
• Call and negotiate. If you do get a collection notice, call and negotiate with the agency. Make sure they agree that if you pay the fine they will remove the collection from your credit file.
• Monitor your credit. Make sure you are monitoring your credit through the Identity Theft Shield. Make sure you know exactly how you appear to the financial world months before you apply for a car or home loan. You want to have time to resolve issues like this before applying.