So you have an unpaid traffic ticket. That’s not the crime of the century. But based on an article I read this week in the Washington Post, it could have significant ramifications for your credit score. And yes, it could cost you $65,738 or more in extra interest payments. Here’s the deal.
Ashley Halsey III reported in the Post that city governments are turning to a new revenue source–collecting unpaid parking and traffic tickets. The District of Columbia, for example, has $355 million in unpaid fines. And that pales in comparison to the $680 million New York City is owed ($58 million in Milwaukee, $30 million in Detroit, and the list goes on). Many of these municipalities are turning these unpaid tickets over to collection agencies.
And here’s the kicker. If you fail to pay, the collection agencies will report the unpaid fine to the credit bureaus.
Now at first you might be thinking that an unpaid fine of $50 or $100 won’t have much impact on your score. Think again. According to Barry Paperno of Fair Isaac Corp. (a/k/a FICO), someone with a credit score of 680 could lose about 50 points. And it gets worse. Someone with a good credit score of 780 could drop as many as 125 points.
To put those numbers in perspective, let’s look at how a score of 780 versus 655 would affect your mortgage rates. As I’ve written before, your credit score has a big impact on mortgage rates. And according to a really handy calculator from MyFICO, a credit score of 780 nets you a rate of 3.68% APR while 655 raises the rate to 4.723%. On a $300,000 mortgage for 30 years, this seemingly small increase in the rate will cost you $65,738 (click the image to enlarge):
So what’s the moral of this story? Pay your parking tickets!
(Photo Credit: rknickme)