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Fortunately, there is one recent change to the world of credit scoring concerning small debts, which are sometimes called “nuisance” collection accounts. In August 2009, Fair Isaac rolled out to all three credit bureaus its newest general-purpose FICO score, dubbed FICO 08. With this new version of the credit score, FICO says its will disregard collection accounts and other dings on your credit file when the original balance owed was under $100.

“The logic there,” says FICO’s Tom Quinn, “is that for small dollar amounts, like a collection notice from a public library system, the (credit scoring) model will now bypass those and not consider those to be negative. Any kind of derogatory public information that’s less than $100” will be excluded, Quinn adds. This certainly has the potential to help boost your FICO score if it was impacted by such a blemish. But beware: amid the credit crunch, every single account you have, and every single financial transaction you engage in is being analyzed to determine your credit worthiness.

All Transactions – Large and Small – Matter Greatly Amid the Credit Crunch

Also, even with FICO saying it won’t use those small accounts in its scoring methodology, the debts nonetheless remain on your credit file, and some lenders may require that you resolve those issues or pay off those debts before approving you for a loan.  More importantly, you should known that every transaction – large and small – matters greatly amid the current credit crunch. And when I say “every” transaction, I mean it.

Your Financial Habits Are Under Intense Scrutiny, Even if You Don’t Know It

Increasingly, retailers, credit reporting agencies, credit scoring companies, and of course banks and other lenders are watching every financial transaction you make. Made an online purchase to buy some shoes lately? Somebody tracked it. That’s why the next time you’re working at your computer – or simply surfing the web – you’ll see a pop-up or some advertisement featuring shoes. Ditto for school supplies, furniture, electronic gadgets, or anything else you purchase. But the scrutiny goes way beyond just watching what you buy, and then trying to sell you more of it. Retailers, lenders and credit-scoring firms are all capturing a wealth of data about your financial habits, both on and offline, in an effort to tell them who among us is the most credit-worthy – and who is the least.

You May Be Deemed “Risky” Based on What You Buy and Where You Shop

So what exactly are they watching? In a word: everything. They’re looking to see whether you accept credit card offers, online, in the mail or via telephone. They’re gauging whether or not you’re likely to take a balance transfer offer for the initial low interest rate – only to toss the card when the offer expires, or when a better deal comes along. They’re looking at the types of stores you frequent, and whether you spend money (that is, use your credit cards) at “risky” establishments, like bars, clubs and casinos.

They’re also poring over all manner of data regarding your housing, and that includes both renters and homeowners. For those of you who rent, they’re looking at whether you’ve consistently paid your rent or time, whether you’ve been delinquent, and whether you’ve ever been evicted. For homeowners, they’re looking at how much overall debt you have, whether or not your mortgage is a fixed-rate or adjustable loan, whether or not you have a home equity loan or line of credit, and if so, how much you typically tap and how often. If it seems as if the credit industry has got a spotlight on you, it’s because they do. But you don’t have to be blinded by it – or blind-sided – if you manage your financial affairs properly.

Your Credit Report is Constantly Being Updated

Again, when I say that every transaction counts, let me make something clear: I’m not just referring to business transactions that involve loans. Every transaction means just that – every economic exchange you make, every credit, loan or contract agreement you enter into, and every financial move of yours that can be documented – all of it matters greatly. Every single transaction counts. Do you think that your dealings with cell phone companies, water end electric services, and public utilities aren’t being monitored? Think again. About 100,000 organizations supply information to the credit reporting agencies.

These organizations include banks, lenders, collection agencies, credit card companies, leasing firms, utility companies and any other entity that extends credit or reports information about you. Even libraries have been known to rat on delinquent patrons to the credit bureaus for having an overdue library book! The same pattern holds true for various municipalities around the country; places like Chicago and New York City will report you to collection agencies in a hot minute to for failing to pay parking tickets or moving violations. And as cash-strapped cities try to cope with budget shortfalls and a tough economy, you don’t have to be Nostradamus to predict that many more cities will soon start using collection agents to pursue “small” debts due from local citizens.

The Convergence of the Credit Crunch, Technology and Big Brother Means You Must Be Careful Even With Small, Overdue Bills

Thus, transactions large and small take on greater importance amid the credit crunch because, in many ways, Big Brother isn’t merely looking over your shoulder these days. Big Brother now seems to be peeking into your laptop, using a skycam to watch where you go, accessing your Blackberry or iPhone, and placing wiretaps on your home and business phones too. OK, so maybe it’s not that bad. But you get my point. An incredible amount of information about your finances and money patterns is being captured, analyzed, and dissected in ways you probably never imagined. I predict that in the future, this trend will greatly increase – even for small bills.

Simple, little transactions that you may regard as minor or even big bills that you are disputing can all wind up having serious ramifications for your credit rating. That magazine subscription you ordered (even if it was just part of a sales promotion) can come back to haunt you if the $14.95 bill isn’t paid. Those music videos you’ve neglected to return (since forever) could land you on someone’s collection list. And even that hospital co-payment or medical debt that you’ve been sent a bill for yet again – for the umpteenth time after your insurer refused to pay – that too could ultimately damage your credit rating if left unattended.

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Q: I Received a Notice From a Lawyer Representing a Credit Card Company, who is Suing Me for a Delinquent Debt. I Took Your Advice and Paid Off All My Delinquent Debts. Unfortunately, This is my Final Bill and They Do Not Want to Provide Me with a Decent Settlement Offer.  I Offered to Settle my Debt for $1,200 and Pay It In Full Several Times. The Debt Has Accrued Interest and Late Fees. As a Result, the Debt is Now $1,978. I Offered to Pay 60% of the Debt But They Will Not Settle. The Lowest Offer They Provided me With at First Was $1,800. Then they Said They Could Reduce it To $1,500 to Settle. I Can Not Afford This. Should I Get a Lawyer? Should I Speak to a Supervisor at the Law Firm? If Know If I Go to Court I Will Probably Lose. Then the Judgment Will Be on My Credit Report. What Options Do I Have?

A: You should definitely attempt to continue negotiations with this law firm. I also think it would be a good idea to speak to a supervisor at the law firm. You may have to be persistent to go up the food chain and reach the supervisor. But it may prove very valuable to talk to a boss, instead of the phone representatives you’ve been dealing with. If you honestly can’t afford the $1,500 settlement they’re proposing, hold firm to your numbers ($1,200). Let them know that you’ve exhausted all other financial resources and that $1,200 is the most you can come up with in a lump sum payment. Also point out what the original loan/debt was. Sometimes, debt collectors will reduce or waive all those extra penalties, fees and interest charges that get added to a debt if you will only agree to pay the full amount of what was owed (minus those extra fees). It wouldn’t hurt to also get some free or low-cost legal assistance. I don’t know the laws in your state, but a qualified consumer attorney can explain your legal options and advice your of various alternatives.

Get online or consult a local phone book for a legal aid clinic in your area; that should help since you said you can’t afford to hire a lawyer. Finally, if you do wind up having to go to court, don’t neglect to go. Too often, people get scared and they simply don’t show up in court. Don’t make that mistake. If you fail to appear, a judgment will automatically be entered against you – in the full amount the attorneys seek. At least if you show up in court, you have a chance to present your side to a judge and to explain your financial circumstances.

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