Karen Diaz's insurance company took about six months to process a claim from a doctor's visit. Even before she was sent a final bill, she got a call from a collection agency demanding immediate payment.
Instead, Diaz called the doctor's office, which said her account was still open and shouldn't have been turned over to collections. Diaz paid the bill, but the collection calls continue -- and now include threats to ruin her credit reports.
"I already paid my debt, and all of a sudden this person is yelling at me and being rude and saying the (debt) is going on my credit," Diaz said. "I don't understand what's going on."
More aggressive collection efforts are among the many looming threats to your credit posed by a deteriorating economy. As lenders get more cautious and jobs get more precarious, keeping a sharp eye on your credit will help you preserve your options, maintain your employability and hold down the costs of any borrowing.
Here's what you should do now:
Know what's important to your scoresIn this economy, you want your credit scores, the three-digit numbers lenders use to gauge your creditworthiness, to be as high as possible. Credit is still freely available to those with good scores -- generally FICO scores of 720 or above -- but those with blemishes are finding it harder and more expensive to land everything from mortgages to credit cards.
Credit information is important in other ways. Insurance companies, employers and landlords increasingly use credit scores or credit reports to evaluate applications. Good scores will help keep your premiums down, qualify you for jobs involving money and land you better places to live.You can get a basic tutorial about how scores work by reading "Your 5-minute guide to credit scores" and by perusing the Your Credit Rating Decision Center. But here are the essentials:
- Pay your bills on time. A single skipped payment can knock 100 points off your FICO scores, the ones most used by lenders. Consider automatic payments and e-mail alerts to make sure bills don't slip through the cracks.
- Pay down your debts. What's most important is keeping your credit card balances low relative to your credit limits. Try to use no more than 30% of your credit limits; 10% or less is even better.
- Beware of opening or closing accounts. Either can hurt your scores.
- Dispute any serious credit report errors. Dispute any accounts that aren't yours or negative information that should have been deleted. (Most negatives, such as late payments or charge-offs, should be dropped after seven years. Bankruptcies can stay on for up to 10 years; unpaid tax liens may be reported indefinitely.)
Monitor your credit reportsFederal law is supposed to prevent creditors and collectors from reporting false information to the credit bureaus, but the reality is that bogus collections wind up on credit reports all the time. As the economy worsens, expect this to happen more often as lenders sell off their debts to collectors, whose first action is often slapping the account on your credit reports whether you owe the debt or not. (For more, read "10 ways to curb sleazy debt collectors.")
You need to keep an eye on your reports so you can dispute such errors if they turn up. You don't, however, need to pay for expensive credit monitoring services unless you're at high risk for becoming an identity-theft victim (more on that in a moment).
Most people can adequately monitor their reports simply by requesting a different bureau's report every four months from the free, federally mandated site AnnualCreditReport.com. You might request your report from Experian this month, for example, then your report from TransUnion in four months, then your report from Equifax, and then start all over again.
Consider a credit monitoring service if someone has already opened credit accounts in your name -- because they're likely to do so again -- or if your important personal identifying information, particularly your Social Security number, has been stolen or otherwise compromised. If you decide to hire a service, look for one that monitors your credit reports at all three bureaus and e-mails you within 24 hours of any significant changes. Also consider a credit freeze to prevent future identity theft. (Read "Should you freeze your credit report?" for details.)
Bird-dog your medical billsRather than try to collect on bills themselves, more medical providers are turning unpaid accounts over to collection agencies, which promptly report the debts to the credit bureaus.
Because even a small collection account can do serious damage to your scores, you want to prevent a bill from reaching this stage if possible. (For more details, read "Why medical debts shouldn't count.")If you have health insurance, follow up on every medical bill to ensure it gets paid and that any disputes are worked out. You may need to call your insurer every month to make sure a bill doesn't get lost in the shuffle. If a bill goes unpaid for more than a few months, call the billing office of the medical provider and let them know you're working on a resolution. Make sure the billing office has your correct contact information and ask it not to turn the bill over to collections while the dispute is being resolved.
If you don't have insurance, try to negotiate a discounted bill and work out a payment plan. (Read "How to survive your hospital bills" for more information.)
Keep your credit options openThe best advice right now: Don't carry credit card balances, use old credit card accounts to keep them available and have cards from at least two different issuers to maximize your flexibility.
Carrying credit card debt has always been a bad idea but is especially so these days. Credit card companies are managing their costs aggressively right now, which means they're jacking up interest rates on some customers with little warning or justification. (Read "The credit card party is officially over.") Higher rates make it tougher to repay the debt and increase your chances of falling behind.
Issuers also are lowering credit limits or shutting down some accounts entirely, either because the borrower has been deemed too risky or because the account hasn't been used in recent months. Lower limits and closed accounts can hurt your credit scores.