Feed the Meter, Save Your Credit Score

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Years of high unemployment, reduced consumer spending and declining property values have created a kind of perfect storm for the coffers of cities around the country. Municipalities are increasingly turning to a new way to boost revenue, but watch out: This new tactic can hurt your credit score if you live, work or drive through these towns, because they’re hiring collection agencies to pursue unpaid traffic and parking tickets. While some municipalities have done this for years, a growing number of towns are climbing on the collection-agency bandwagon. New York City got more aggressive with drivers beginning late last year, according to the New York Times. This year, some suburbs of big cities like Chicago and Washington, D.C. have turned to bill collectors to pursue scofflaws.

(MORE: How to Get Out of a Speeding Ticket: Wear a Monkey Mask)

If this sounds like overkill, the money involved can be serious: In New York City, the tally from unpaid parking tickets is a whopping $700 million (and includes one driver who owes more than $57,000 — on a vehicle that was subsequently repossessed). The city sent 1.4 million tickets — $209 million of that total — to collections.

And here’s the worst part: For scoring purposes, the credit formula doesn’t make a distinction between a $25 parking ticket you got when your meter expired and an outstanding credit card debt of $25,000. Any account in collections that the agency reports to a credit bureau has the same impact on your credit score, and it’s a big one.

(MORE: Credit Scores Down But Credit Card Debt Up)

According to an article in the Washington Post, people with average credit scores — that is, in the 680 range — can lose 50 points when a debt is sent to a collection agency. For people who are closer to the top of FICO’s 300-850 scoring range, the hit is even worse. The Post quotes FICO employee Barry Paperno:

“For someone with a 780 score — very, very good credit — the appearance of one of these collections could lower their score by as much as 105 to 125 points.”

Prior to the ubiquity of online databases, drivers who received an out-of-state ticket could sometimes get away with not paying because it was simply too hard for the issuing municipality to track them down. But collections agencies can easily reach across borders and find scofflaws regardless of where they live or where the vehicle is registered.