Your credit score says little about your financial status, but it does tell banks whether you’re a risk or a sure thing with their depositors' money. It’s based on a credit report that contains only information that a bank or another lender, such as a credit card company, might want before extending you credit. How much an unpaid bill affects your credit score depends on your previous behavior and present actions.
The Debt's Nature
Some unpaid bills -- medical bills and credit card balances, for example -- typically get reported through collection agencies due to their size or due to company policy. Others, like local house accounts, may be too small to be profitable for collection and might not get reported to credit agencies at all. An unpaid medical or utility bill could drop a score 100 points, but if it isn’t reported, it won’t affect your score. Also, your score is re-figured each time it is requested, so the value of an unpaid bill can vary from week to week and is always weighed against the rest of your credit picture.
Your credit score, be it from FICO or Vanguard, the two major scoring organizations, changes over time according to your behavior. If you fail to pay a bill and make no attempt to contact your creditor or set up some sort of payment plan, the creditor is more likely to turn the bill over to collectors. Some creditors turn debts over to collectors -- who always report failure to collect -- regularly, but many creditors negotiate payment plans rather than spend money on collection or legal proceedings. If you do work out a deal on the debt, the unpaid portion might appear as an additional nonpayment on your credit report, again dropping your score unless the creditor is willing to report the debt as satisfied.
Your Credit History
Whether unpaid debts bounce a score two points or 100 depends on how many bad debts you have on your record and its length. One resolved debt might have little weight -- but a long history of nonpayment will land you in the credit score basement. According to FICO, one of the two major credit score providers, 35 percent of your credit score is established by your payment history, so a pattern of nonpayment will certainly keep your FICO score below that creditworthy 722 level.
Matters Beyond Your Control
You have no control over whether an unpaid bill is reported to Experian, Equifax and TransUnion -- the credit reporting agencies -- and whether each will record it accurately. You also cannot control whether your creditor will report satisfaction of the debt -- and whether all three agencies will record that as well. You can, however, work with your creditor to keep the debt unreported and out of collections. You can also check all three of your credit reports quarterly and insist on corrections so your credit score is as positive as possible the next time it’s drawn.
- myFICO: What's in My FICO Score
- Vantage Score: How Credit Is "Scored"
- Kiplinger: Understanding Credit Scores
- Kiplinger: Unpaid Bills and Your Credit Score
- Kiplinger: How Unpaid Debts Affect Credit Scores
- Experian: Unpaid Hospital Bills Can Affect Your Credit Rating
- Good Financial Cents: How Much Do Unpaid Medical Bills Affect Your Credit Score
An avid perennial gardener and old house owner, Laura Reynolds has had careers in teaching and juvenile justice. A retired municipal judgem Reynolds holds a degree in communications from Northern Illinois University. Her six children and stepchildren served as subjects of editorials during her tenure as a local newspaper editor.