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3 Financial Moves That Could Backfire and Trash Your Credit Scores

Everyone knows that defaulting on credit obligations, filing bankruptcy and running up huge amounts of credit card debt can trash your credit scores. But, in some scenarios non-payment might seem appropriate and almost justified. The following are three such scenarios but, as you’ll see, your refusal to pay will almost always backfire.

“I never got a bill so I’m not going to make my payment.”

Let’s face it, you don’t always receive your mortgage, auto loan, credit card, student loan and especially utility bills/statements in the mail or in your inbox. But, if you think you’re not obligated to make your payments just because you didn’t get your statement, think again.

The absence of a bill doesn’t relieve you of your liability or obligation to make your payments on time and it won’t protect you from late fees. That’s the bad news. The good news is the credit reporting industry is willing to cut you some slack if you don’t get your statement and end up paying late as a result.

In order for any lender of any type to report you as being delinquent to the credit bureaus you have to be a full 30 days past the due date. And, if you didn’t get your bill and missed a payment as a result, it’s very likely that you’ll get a phone call or some other alert from the creditor letting you know that you’re late. As long as you quickly make your payment you’ll protect your credit reports and credit scores.

“My insurance is supposed to pay that doctor’s bill so why should I pay it?”

Have you ever gone to a hospital and ended up with a bill that you knew was supposed to be paid by your insurance policy? That was a dumb question; we’ve all had that experience. And while you’re probably right that the insurance carrier is eventually going to pay the bill, it doesn’t mean it’s going to get paid in a timely fashion.

Doctors and medical service providers want to get paid, just like banks. They also want to get paid in a timely manner, which means if your insurance company takes their sweet time paying claims you may end up with a collection agency breathing down your back for payment. If a collection agency is involved it likely means the bill is over 90 days delinquent and you probably have a medical collection on your credit reports, which are next to impossible to get removed for the next 7 years.

My advice is not going to be popular. If you get bills from your medical service providers and they’re affordable, I’d strongly suggest paying them before they go into default. That will protect your credit reports and credit scores. Then you can take up your argument with the insurance company for reimbursement. This is what I call choosing to lose the battle.

“The debt settlement company told me to stop paying my credit card bills.”

This is my favorite of all of the bad ideas. Debt settlement companies offer services purported to help you get out of your credit card debt by paying only a portion of what you owe your credit card issuers, rather than all of it.  This is called a “settlement.”

The first thing that happens when you engage a debt settlement company is they tell you to stop communicating with your credit card issuer. This includes making any payments.  The theory is that if you stop paying them they’ll eventually get so desperate that they’ll take a low-ball settlement offer, which is facilitated by the debt settlement company for a fee.

The problem with ignoring your credit card issuer is that A) they’ll report you as being more and more delinquent to the credit bureaus and B) they may sell the debt to a collection agency that will begin hounding you for payment and report the collection to the credit bureaus and C) they may sue you for non-payment.

If you want to negotiate a settlement with your credit card issuer, fine. But, you can do so yourself without paying someone to do it for you. And, if you do choose to flat out stop paying your bills, you need to be aware of the serious and expensive ramifications of doing so.

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