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Dear Debt Adviser,
I moved to Chicago several years ago soon after
opening a charge account at a department store
to receive 20 percent off a pair of $85 shoes.
My change of address form was filed, but I did
not receive some mail -- including the bill from
this new department store.
Eighteen months later, a collection agency called and made me aware of this overdue bill. Of course, I was surprised and paid it off right then over the phone.
Last month, I bought a car and my credit score was low because of this shoe bill. What can I do to fix this? It doesn't seem fair, as I never received the bill in the first place. Thank you.
-- Sharon
Dear Sharon,
I am reminded of that line from the movie "Spaceballs" in which Pizza the Hut asks, "Fair to whom, the payor or the payee?"
Your letter is a great example of how one little slip-up can really work against you in the world of credit reporting. I know that it seems quite unfair that your credit history would take such a negative hit for a small unpaid bill. However, you get part of the blame for not following up on your own before you were called.
Unfortunately, the amount of the bill is not nearly as significant as the fact that it went unpaid. Potential creditors want to know that you pay ALL your bills on time, every time, regardless of the total amount owed.
Granted, a creditor may be less troubled by your unpaid $85 bill plus interest than if you had an unpaid $8,500 balance plus interest. But the fact remains that you owed the money and you did not pay the bill. That is what creditors see when they review your credit report or score.
The fact that you did not receive the bill after your move is not the point. You did leave the store with your new shoes and with the mutual expectation that you would pay for them at a later date -- a signed promise on a contract for a charge account with the store.
The "save 20 percent on your purchase today if you open a charge account with us" offers seem like a no-brainer at the time. After all, who doesn't want to save money? However, problems may arise for those people who may not be as organized as they need to be or who may be distracted because they are moving out of town.
My recommendation moving forward for you and other readers is to be sure that you keep an eye out for new bills and call if you don't receive them. Bills do not improve with age, and they rarely get forgotten. So being proactive is by far the best policy.
Many organizations use the information
in your credit report when making decisions. In
your case, the 20 percent that you saved at the
time of purchase may have cost you hundreds of
dollars in future credit costs, insurance premiums,
and even possible job or promotion opportunities.
The negative item on your credit report is unfortunately there to stay until it drops off (seven years from the first date of delinquency). The good news is that the impact of the item on your credit score will decrease with each month that passes from the date of your payment of the account.
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