How Small Debts Affect Credit Score
Larger debts like the student’s loan, mortgage and other credits can pull down the credit score. However, even a small bill of a hundred dollars would pull down the credit score. There are several incidents were a small bill has destroyed a good credit score.
The most common type of mishap which leads to the destruction of the credit score is the problem in the billing address. Usually, the shops or the other service provider might send the bills to the billing address in the proof you give or from the records they possess. This might not be the current address, you are residing. Thus, a small bill would lie as a bad debt, as the creditor would not spend a lot of energy, to track you down.
If the creditor shifts to collection agents to get back all the bad debts, the small bill would also be recorded against your credit score, in your report. The non-payment of a small bill might not affect your score in the same manner as that of the non-payment of a large bill.
Will all bills get recorded?
There are many occasions where those forgotten bills might not come back at all. It totally depends upon the creditor. If he wants to report the bill, then, even a micro bill can be found in your credit score. If the collector working for the company wants to report all the bills, then your credit score might get affected. A lawsuit may also be filed or simply, your credit score may be affected. It depends upon the creditor’s interest.
Paying off old bills
Settling off the old bills would help to heal the credit score. Some might opt to negotiate lower payoff. This helps in the case of resolving multiple debts. No matter whether the individual plans to pay off the full amount or to negotiate for a lower value, once the debt is closed, the credit score would automatically go back to normal. If the bills are creating a negative impact on the score even after paying off, it is important to contact the concern person and talk about it.
Usually, a letter is written to the creditor describing that the bills are paid and are still being shown as unpaid. This is called a goodwill letter. This letter is basically to rebuild your goodwill be increasing your credit score. Keep a track on the credit report and monitor it to know whether your score is where you expected it to be.