Unpaid School Fees May Affect Credit

Unless students own a credit card or are paying off school loans, credit scores are probably one of the last things on their minds.

Credit scores can be fragile, sensitive entities, and even the lightest amount of unpaid debt can lower them into a range of scores that lenders don’t like to see on loan applications.

Applying for loans and the possibility of making big purchases in the future (like cars) aren’t the only reason students should try to keep a clean slate on their credit reports. With employers able to require a credit report check before hiring, credit scores may be the one thing standing between students and some of the jobs they apply for down the road.

While the beauty of the U.S.’s current higher education loan system may be that loan companies can wait until students graduate to start collecting payments, what many students may be unaware of is that, regardless of whether they’ve taken out a loan, they already may be hurting their personal credit scores by neglecting to pay fees they incur while in school.

The key word here is “unpaid,” whether it applies to library fees for late or lost books, on-campus parking tickets and/or other traffic fines, or unpaid housing, and/or meal plan costs – basically, anything that can show up on a student’s University account as unpaid, according to USA Assistant Controller and Bursar Polly Stokley.

When unpaid fees in any of the aforementioned categories reach or exceed the $500 limit, she said, the University can turn this information over to collectors; at this point, the unpaid amount is classified as “delinquent,” and USA notifies students when collectors access that information, she said. USA students don’t often reach this $500 limit.

USA is fairly gracious with time, too, as almost an entire year will go by before the University will turn a student’s account information over to collectors, she said.

“We just want them to pay their bills and be good alumni,” Stokley said.

The only problems students encounter if they have overdue traffic fines, parking tickets, and library fees (amounting to less than $500) on their accounts is blocked transcript access and the inability to receive a diploma at graduation, she said.

Outside of USA, students don’t get such a good break on unpaid debts, and they do so with little know-how about maintaining healthy credit scores, according to Linda Ferrari, credit expert, speaker, and author of “THE BIG SCORE: Getting It and Keeping It, Buying Power for Life.”

“We are forced to manage the most important financial element of our lives, one which directly impacts our nation’s overall economic health, and to do so without any type of training or education,” Ferrari told The Vanguard. “Our schools teach us about history, grammar, and foreign language, all very important subjects, yet I don’t recall being taught how to manage my credit, do you? Regardless of what you read and hear, there’s a lot more to calculating that three-digit number than paying your bills on time. My advice is to educate yourself.”

Traffic courts and non-academic libraries feed collectors information about unpaid debts, said Ferrari, who gave credit score protection advice on Fox News in February 2009 and has coached thousands of mortgage professionals and consumers.

“Courts definitely sell parking tickets to collection companies if not paid, and many libraries sell their accounts receivables to collection companies,” she said. “Once that happens, that collection company has the right to report that item to the three major credit bureaus: Equifax, Experian and TransUnion. And believe me, they will.”

A $50 collection can mean a loss of 50-100 credit score points, she said, “depending on how many points someone has to lose in the payment history factor of the credit score.” The payment history factor accounts for about 35 percent of the total score, according to Ferrari.

“Good things” like returning library books on time and not getting parking citations should improve credit scores, she said, but they don’t. The only way to improve a credit score is to pay off (in a timely manner) “credit accounts like mortgages, auto loans, credit cards, etc.”

The following is a Q&A with Ferrari about credit improvement/protection:

The Vanguard, Daniela Werner: Are there are any other ways students can lower their credit scores without knowing it (aside from making loan payments late, not paying their credit cards on time, etc.)?

Linda Ferrari: What most consumers don't realize is that their credit card balances will bring scores down, even if they pay their cards on time, every month. 

Here's how it works.: The balance on the statement that you receive is the balance that is reported each month to the credit bureaus.  You would think that creditors would report the balance AFTER you paid your monthly payment – on time, but they don't.  The creditor and lending system is on a completely different page than the credit reporting and scoring system, which is very disappointing because credit reports and scores are an integral part of the lending system. 

Anyway, here are the rules:  If you want your scores to go up, then you must keep your credit card balances below 30 percent of their limit on statement date; if you want to maintain your scores, then it is OK to keep your balances just below 50 percent of the limit on statement date.

Once you go over 50 percent of the limit, you lose points. – even if you have NO negative history on that account.  This is a per-card rule, and not an average. 

All it takes is one card to lose 50 points, however, if you have three cards over 50 percent, you will have to pay them all down to get those points back.  And, if you go over your limit on a credit card, you stand to lose a more significant amount of points. 

D: How do you recommend that students improve their credit score if they have in fact lowered it through things like late fees and parking tickets?   

L: The key is to immediately deal with any collections that have been reported.  What I mean by "deal with" is get it paid.  And in most instances, collection companies will agree to delete a collection from someone's credit reports in exchange for payment (if you ask) and if you let them know that those are your terms. 

If they agree, you always want to get their promise to delete in writing BEFORE you make payment. 

I talk in great detail about this topic (dealing with collections and creditors) in my book, “The Big Score.”  I highly recommend that ALL students educate themselves as much as possible on the topic of credit and my book is great place to get started.

In addition to dealing with the collection account, you can age out negative credit history more quickly by making sure that you manage your credit by the book: pay all accounts on time, keep credit card balances low, and avoid having collections reported. To get a complete look at Ferrari’s credit protection philosophy, visit lindaferrari.com.