When most of us think about the things that hurt our credit the first thing that usually comes to mind are large credit card balances, missed mortgage or student loan payments, or late bill payments. It doesn’t occur to us that to local governments and municipalities, parking tickets, speeding tickets, and overdue library books are debts, and treated accordingly.
“There are so many areas of non-traditional credit that is extended to Americans every single day,” said credit expert Lynette Khalfani-Cox. “People don't equate with potentially having an impact on their credit score, but they absolutely can,” she added.
Case in point: Washington D.C. resident, Omar Al Chaar. About 2 years ago, Al Chaar parked his car in the same area of Washington D.C. as he did each Thursday evening when he played basketball with friends who worked at the Department of Justice.
He said traffic cops were brutal. “My time would expire at 7PM and at 7:02 I would come out and he had written me a ticket and he's driving away at 7:01. And the funny thing is, it's always the same guy!” Al Chaar got frustrated by all of the tickets and eventually stopped paying them. At the time, he had a strong FICO credit score in the 700’s. When Al Chaar went to a lender to apply for mortgage loan, he learned that his credit score had plummeted 105 points because of unpaid parking tickets.
FICO (Fair Issac and Company) is the company that takes information compiled in your credit history and puts it into a mathematical formula in order to calculate your credit score. Lenders use that score to determine if you’re a good credit risk and to determine if they’ll give you loans, and how much they’ll charge you.
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Five parts to your FICO credit scores
How much you owe
30% of a FICO score
How much available credit are you using, and on how many different accounts? FICO considers the number of accounts with balances you have and how much you owe on those accounts. Your score will decrease as what you owe increases compared to your credit limit.
Your payment history
35% of a FICO score
A record of on-time payments increases your credit score, while late payments, bankruptcies and other negative items can decrease your score.
10% of a FICO score
Have you opened or applied for a new account recently? This will generally bring down your credit score. When a lender checks your credit history as you apply for a new account, your score may drop by a few points — usually less than five. To avoid lowering your score when you need a loan, focus your rate shopping into a short amount of time (1 month, etc.).
10% of a FICO score
If you have a variety of credit types on your credit report (mortgage, credit cards, auto loans, etc.), your score can rise slightly.
Length of credit history
15% of a FICO score
A lengthy credit history will generally increase your score. Nonetheless, if you manage credit responsibly, you can get a high credit score with a short credit history.
FICO scores have a 300-850 range and scores that are 700 or higher, like Omar’s prior to his tickets, are considered strong.
Your payment history – whether or not you pay your bills on time, account for 35% of your score. Omar got into trouble because parking tickets go through the same process as other unpaid bills:
• You’ll be warned
• You’ll be charged late fees
• Continue to turn a blind eye: You’ll be turned over to a collection agency
“It's typically three to six months before something like that would even appear on a credit report, before it's sent to collection,” said Rod Griffin, director of public education at Experian.
“At that point it's the presence of that unpaid collection that really has a negative impact.”
If you receive a collection notice due to an unpaid fine to a county or municipality,
• The first thing you need to do is pull your credit report. You can get a free copy once a year at www.annualcreditreport.com
• The complaint will show up in your credit report under a section called "derogatory marks."
• If it's accurate: pay your fine as quickly as possible.
• If you find an error or if you've paid the bill and it's still showing up, dispute the report
The three major credit bureaus, Experian, Equifax, and Transunion, all have areas on their websites where you can submit written challenges.
Omar says he’s learned his lesson, saying ”due to this experience I definitely pay more attention to everything that has to do with my credit."