Feb 8, 2008 5:28 pm US/Pacific
How An Unpaid Bill Can Torpedo Your Credit Score
(CBS 5)
Michael Douglas watches his money. "I'm pretty cheap, so I don't like to spend money needlessly..."
So Douglas didn't have a problem when his wife used her Banana Republic credit card three years ago to purchase a belt on sale for $18.72.
The bill was never paid. The Douglases had moved. Banana Republic didn't have a forwarding address, so they never got the bills that the company sent.
"Anybody with any common sense could see that this was a pretty honest mistake," said Douglas.
It is a mistake the Douglases paid dearly for. The $18 bill jumped to $172. Their perfect credit score plunged.
"It impacted my wife's credit score by more than 100 points," said Douglas.
The credit drop was such a big deal because they are currently trying to refinance their mortgage. The lower the credit score, the higher the interest rate.
"Over the life of the loan, an $18 belt will end up costing us an extra $9,000 in extra interest if we weren't able to get this fixed," said Douglas.
"The magnitude of this story is outrageous," said Richard Holober of the Consumer Federation of California.
Holober said if you feel there is an honest mistake or an unfair mark on your credit report you need to take action. "You have to be aggressive, you have to be persistent," said Holober.
Douglas' persistence did get the finance company, GE Money, to remove the debt from his credit report.
Removing the debt may not be the end of it, though. "Even if you pay it and clean it up," said Holober, "the fact that it went unpaid can remain on your report and continue to cause you problems."
It's important to make sure that the creditor sends something called "a letter of deletion" to the credit agency. ConsumerWatch contacted GE Money and they agreed to send that letter.
Holober says it's needed "so, there's no trace of it on your (credit) report."
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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