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You CAN Get a flag on your credit IF the library had over due fines that they sent you to a collection company for. But the library themselves does not report your book borrowing activities to the credit agencies.
That said, the teller you were talking to would not have known that the collections flag had to do with an overdue book, she would only know the person had been declined because they'd had a delinquent account go into collections with some company. So they were totally shitting you.
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~ Just another noob looking for a clue
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