They can't ruin your credit or even report it to one of the credit watch dogs regardless of what they say. They won't sue to collect it because the costs of suit far exceed the $500. What I am saying is the consensus of all the lawyers on Avvo that have looked into this question: through the demand and any further letters you get away. This comes up so often that I have written a legal guide on it. My colleague Robert Lee Marshall has done the same. I suggest you read both to set your mind at ease.
The civil demand is a scam.
The only real threat is that they could file a lawsuit and get an additional civil penalty on top of any amount they can prove was taken, and possibly attorney's fees and costs. The $500 is doubtless the maximum your state permits for the civil penalty, in other words its about the most you would pay anyway if you were sued and lost. These civil demands are done all over the country, usually by a firm in California, and to my knowledge none of them have ever resulted in a lawsuit. It sounds like they are getting more aggressive in their tactics recently, but the reality is unless you are accused of taking thousands of dollars worth of stuff, it simply isn't worth them pursuing a lawsuit. Also, they have no power to re-institute criminal charges, and the only way it could show on your credit is if they were successful in a lawsuit and you didn't pay the judgment.
Notice: The information contained herein is intended as general legal information and does not create an attorney-client relationship and is not governed by confidentiality rules. This general legal information is not a substitute for seeking the direct advice of legal counsel.