Can Going to the Library Hurt Your Credit?

If you have overdue books at the local library, you may want to return them now. That’s because a number of cash strapped libraries have started using collection agencies to collect fines and fees that are owed to them for overdue books. And once your name is turned over, there is a pretty good chance that you will find your library fines showing up as unpaid bills on your credit report.

 

But it is not just libraries that are getting into this act. Municipalities across the country are now choosing to use collection agencies to collect fees that they are owed, rather than attempting to take consumers to court. Unpaid parking tickets, fees for the city dump, and just about any other kind of fee that governments are charging are making their way to the desks of private collectors.

 

It is up to the municipality to determine if they will report you to the credit repositories for unpaid bills. Some of them don’t, but many of them will report you after several collection attempts.

 

When these line items finally do show up on a credit report, their impact is no different that unpaid credit card bills. Credit scores go down and interest rates for credit go up. Consumers with credit cards issued by banks that use the practice of universal default may find that the interest rates on their existing credit card balances are increased to 30% or more as soon their bad debt is reported to one of the three credit repositories.

 

Of the three repositories, only Equifax currently tries to screen out municipal fines on credit reports. Their reasoning is simple. Not all municipalities report these kinds of unpaid bills. Therefore, Equifax is trying to level the playing field for consumers. Likewise Fair Isaac, the company that created the widely used FICO credit score now attempts to filter out municipal fines of $100 or less.

 

Even so, unpaid library fines that are recent – within the last eleven months – can cut your credit score by anywhere from 30 to 90 points when reported. This is a significant drop. For anyone who is seeking new credit, this kind of drop will almost assuredly lead to a higher interest rate for loans, and could prevent you from getting a loan at all. Another impact could be increased insurance rates.

 

So if you have overdue books or unpaid tickets, you should probably consider paying them soon. While you may find paying these bills painful, it will certainly be a lot more painful if you don’t qualify for that loan to need to buy than shiny new car that you have been eyeing.

 

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