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How a small debt can affect the credit rating

Many residents of Washington, D.C., know how important it is to protect their credit rating. However, there is a common belief that only large debts can cause problems on a credit report. This may be inaccurate, as recent reports indicate that small debts may trigger collection efforts, sometimes entirely without the debtor's knowledge. These irregularities are sometimes discovered at critical moments and derail plans for home purchases, personal loans and other credit-based activities.

There are several types of consumer debt that can damage a credit rating. Credit card debt is reported immediately after missing a single payment, so the rating will begin to suffer at once. However, with medical debt and other consumer debt it begins to affect the credit rating whenever it goes to collection.

This can have surprising effects on small debts, even debts so small that the debtor was never aware of them. People have found their rating affected by medical bills that were never properly sent to them and late video rental charges for businesses that no longer exist. One reason that this may occur is that a bankrupt business will commonly sell the debts that are owed to them to third-party collectors. The collectors may decide to pursue the debt with no other information about the circumstances or the charges. Once the debt has gone to collections the credit reporting agencies will take notice of it, and they categorize their reports by how recently it was sent to them instead of how large the debt it.

The assistance of an attorney can be helpful to anyone who wishes to clear their credit report of outdated, erroneous or irrelevant information. The attorney can assist in the negotiations with the creditors and the reporting agencies.

Source: FOX Business, "Small Debts Can Lead to Big Credit Score Problems", Erica Sandberg, July 17, 2014

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