Most people know and understand that a missed or late payment to a creditor can bring down your credit score. This is a well known and accepted fact by the average consumer. Just as well the average person who has had dealings with credit knows the repercussions of this.
A new twist to your credit report can include unpaid debts to local or state municipalities. Private collections firms are now being used by some of your state and local agencies to collect delinquent an unpaid debts. These debts can range from tax payments to a parking ticket that was unpaid.
Forgetting to pay that parking ticket could cause a collection notice coming to your mail. Understand that most lenders use your credit score as a gauge to determine if you are credit worthy. So ask yourself can something as small as an unpaid ticket be an accurate test to know if you are creditworthy?
No one knows how much weight this will carry on the scoring model that FICO uses. This could put the average consumer on the losing side of the credit system. The reason why this could happen is remember that once a billed is turned over to a collection firm they report it to the credit bureaus. Which in turn shows up on your report as a collection which brings down your credit score.
The affect to the average consumer can be drastic to say the least. Since most lenders use your credit score as factor on whether to loan you money or not. Two ways this can affect a consumer is, they deny you credit or they could charge you more for the money you do borrow in the way of more interest.
Another point to be made here is the collection can stay on credit report for up to seven years. If you have a strong credit score this may not affect you as much. On the other hand if your credit history is a little weak this can cause some problems.
Rumor has it that the Fair Isaac Corporation(FICO) is studying if this is a indicator that should be used in their scoring model and how much weight it should have. No one knows how this will turn out or how long this will even be studied. Will the lenders use this to determine if you are a good or bad credit risk? Hopefully not.
Understand that the present system to determine your credit score is okay as far as the lenders are concern. With that being said you are the only one that can protect you credit rating. So be vigilant when it comes to your credit rating, pay your bills on time and pay down that debt and most importantly watch those tickets.
Kevin Peterson has been a tax consultant for more than twenty five years. He has recently in the last five years added credit repair to his service and has helped numerous clients improve their credit rating. Learn valuable information on how to rebuild your credit in time for a home mortgage herehow to rebuild your credit in time for a home mortgage here.
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