Errors on credit reports are a very common issue. According to the Bureau of Consumer Financial Protection (the federal agency/ which regulates much of the financial industry), credit reporting is the most common source of complaints by consumers.
If you have an error on your credit reports, it is possible to have it corrected. You would do this by disputing the issue with the credit bureaus, and seeing if they make the required corrections.
If not, you should write directly to the creditor who placed the negative innacurate information on your credit reports, and inform them of the error. You should also provide any supporting documents, which further demonstrate your claim of a credit reporting error.
If this fails to correct the errors, you have a number of options. Depending on how damaging the errors on your credit reports prove to be, you might want to consider a lawsuit against the credit bureaus, as well as the party which reported the negative information to the credit bureuas (usually a lender, debt collector, or debt buyer).
Failing to correct innacurate information on your credit reports, after you’ve informed a credit bureau or creditor that such information is incorrect, is a violation of the Fair Credit Reporting Act (FCRA), the powerful federal law which regulates credit bureaus, as well as lenders, debt collectors and debt buyers. If a debt collector is involved, reporting incorrect information on your credit reports may also be a violation of the Fair Debt Collection Practices Act (FDCPA).
Such a lawsuit typically won’t cost you anything. If an attorney chooses to represent you, their fees (as well as court costs, like filing the lawsuit), will be paid by whoever you sued, i.e. the credit bureaus, creditor or debt collector. What’s more, you’ll probably recover some money – just as importantly, have the errors on your credit report corrected.
For this reason, any time you have an error on your credit reports, which has not been fixed, you should consider speaking with an attorney who specializes in credit reporting errors.
Below, we’ve laid out some of the most common errors on credit reports, which you might file a succesful lawsuit over. Keep in mind that since the facts of each case vary, there’s no guarantee you’ll be able to win a lawsuit, or settle the case.
However, in each of these cases, you should definitely speak to a lawyer, and find out if you have grounds to sue. We’ve also reviewed how you might go about finding an attorney to help with your case.
1. Receiving a 1099-C Debt Forgiveness Form, & Having An Unpaid Balance Continue To Appear On Your Credit Reports
Perhaps a credit card issuer or other lender charged off your debt, after you failed to pay. In some cases, they’ll choose to collect on the debt, either by themselves, or through transferring the debt to a debt collector, or selling it to a debt buyer.
In other cases, however, the lender forgives your debt. In these cases, they’re not saying that you never owed them money, or that the debt was not legitimate. Yet, forgiveness of the debt does mean that you no longer have to pay on the debt, and will not be sued in connection with the debt.
When a creditor forgives a balance of $600 or more, they must report the forgiven balance to the IRS, through a form called a 1099-C. If you recieve one of these forms, after a debt was forgiven, you’ll have to pay taxes on the debt.
However, the amount of the balance that was forgiven, should not continue to be reported to credit bureaus. After all, the debt is no longer owed, and you had to pay taxes on the debt.
Why should you continue to be penalized for this debt? Most courts (though not all) have taken a similar view, and customers who sued in these cases were often succesful.
If a creditor forgives your debt, and continues to report a balance on your credit reports, you should immediately contact an attorney. The attorney will probably request a copy of the 1099-C, and obtain a copy of your free official credit reports, from Annual Credit Report.
They will then send the 1099-C, and your credit reports, to each credit bureau, and ask them to correct the balance. If the credit bureaus don’t correct the error, the attorney will send a similar letter directly to the creditor. If this does not resolve the issue, then the attorney will file a lawsuit.
2. Reporting A Balance On An Account Which Has Been Transferred
If you stop paying on a debt, the account will usually be charged off, after 120 to 180 days. This applies to credit cards, personal loans, auto loans (in which case the car will be repossessed), and so on.
In some cases, the lender will try to collect on the debt themselves. In other instances, they’ll sell the debt to a debt buyer, or transfer it to a debt collector.
When a debt is transferred to a debt buyer or collector, the lender must list the balance on the debt as $0. After all, you now owe the debt to the debt collector or buyer, not the lender.
In these cases, it typically makes sense to dispute the balance on the debt, first with the credit bureaus, and later with the creditor directly. Point out that the debt was transferred, and so the creditor should not be reporting a balance.
If the lender continues to report a balance on the debt, an attorney consultation should be your next step. It makes sense to have the attorney try to correct the mistake. If they cannot do so, a lawsuit is the logical next step.
3. Listing A Debt On Your Credit Reports For Longer Than Permitted
By law, charged off accounts and collections can only appear on your credit reports, for 7 to 7.5 years after you first stopped paying on the account. What does this mean?
Remember, most loans are charged off, after you’ve missed required minimum payments for 120 to 180 days. At that point, the lender writes off the debt. They might try to collect on the debt themselves, or instead transfer the debt over to a debt buyer or collection agency.
To become 120 to 180 days late on a loan, you must first be 30 days late (that is, miss your first of many payments). This date is known as the date of first delinquency.
A charged off account, or an account sold/transferred to a debt buyer or collection agency, can remain on your credit reports for 7 to 7.5 years after the date of first delinquency. So, if you first stopped paying on a debt in January 2014, it should be removed from your credit reports by no later than July 2021.
It is not uncommon for lenders, debt buyers and collection agencies to make mistakes, and list an incorrect date of first delinquency. In other cases, they list incorrect dates on purpose, to keep accounts on your credit report for longer than permitted, and pressure you to pay on a debt.
Some debt buyers and collection agencies list the date the debt was transferred to them as the date of first delinquency, rather than when you stopped paying on the original account. This can lead to accounts remaining on your credit reports for many years after legally allowed.
Remember that debt we talked about, which you first stopped paying in January 2014? Suppose a debt buyer purchases the date in January of 2017, and starts listing that as the date of first delinquency. The account would now remain on your credit reports as late as July of 2024. This is innacurate, and means the account will be damaging your credit for much longer.
If you believe debts on your credit reports might be outdated, you won’t be surprised to hear that you should contact an attorney, and have them review your case. They can usually prepare a dispute letter for you to send to the credit bureaus, seeking to have the disputed account removed. After that, the next step is to follow up with the creditor, and if the issue still remains unresolved, file a lawsuit.
4. Reporting An Incorrect Amount Owed On A Charged Off Debt Or Collection
If you owe a creditor or debt collector money, they can report the account to credit bureaus. Of course, as discussed earlier, they are required to report the account accurately.
One important part of accurate credit reporting is listing the proper amount owed on the account. In some cases, creditors incorrectly calculate the amount owed, or add larger interest payments than permitted by the contract, or tack on other costs and fees illegally.
If this leads to a higher amount being listed as owed on the account, you’ll face further damage to your credit score. For example, if you owe $3000 on a charged off credit card, but a lender incorrectly states that you owe $3400, then a higher amount of charged off debt is being listed as owed, which can further reduce your credit score.
If you have reason to believe that the amount owed on an account is incorrect, you should first speak to an FCRA attorney, and have them review your case. The attorney will be able to advise as to whether you might have grounds for a lawsuit, and can prepare dispute letters for you to send out. If the errors are not corrected, the attorney can file a lawsuit.
A Note About The Fair Debt Collection Practices Act (FDCPA)
Thus far, we’ve focused mainly on violations of the FCRA. However, we should also keep in mind that a large portion of the negative items on credit reports are collections, which are controlled by another federal law, the Fair Debt Collection Practices Act (known as the FDCPA). The FDCPA regulates how collectors can collect on a debt (such as when they can call you, and what they’re allowed to say), as well as what sorts of procedures they must follow if a debt is disputed, or you ask for a debt to be validated.
If collections accounts appear on your credit reports, it is possible that there have been violations of the Fair Debt Collection Practices Act (FDCPA). Many attorneys who focus on the FCRA also handle FDCPA issues.
For this reason, you should provide your attorney with any collections notices you recieved, as well as other information you might have, regarding the actions of debt collectors. This includes things like what times a collector has been calling you, and what they say during these conversations. If the FDCPA was violated, your attorney might be able to obtain damages in these cases as well, or push for the deletion of collections accounts.
Finding An Attorney To Help You
How should you figure out who would be a good attorney to work with? The National Association of Consumer Advocates (NACA) is an association of lawyers who help consumers with various issues, including credit report errors and debt collection. NACA offers a list of attorneys who practice law in your state, and can help with these issues.
You might also visit Avvo. Avvo helps you find attorneys in your area, and offers ratings based on how long an attorney has been practicing, their areas of experience, as well as reviews from their clients. Avvo is often a good source for finding helpful local attorneys.
Yelp isn’t just useful for searching for restaurants. Many law firms actively use Yelp, and clients certainly leave reviews quite often. With Yelp, you’ll want to make sure that an attorney you’re interested in actually practices in the specific are of law which you need help with – but a simple phone call or email will help you quickly find out that answer.
Lastly, there’s no doubt that the best referrals often come from friends and family. If you have a friend or relative who has dealt with credit reporting and debt collection issues before, they might know an attorney who can assist you.
How Much Money Will You Recover In A Lawsuit?
By law, each violation of the Fair Credit Reporting Act, or of the Fair Debt Collection Practices Act, is punishable by an award of $1,000, as well as attorney fees and costs (such as court filing fees). If you can prove damages (such as being denied for a mortgage or auto loan), there’s no limit to your damages.
In most cases, credit bureaus and debt collectors settle these cases out of court. A lot (probably most) of the settlement amount will be used to pay for attorney fees, but you will probably get at least some of the money recovered – and it won’t cost you a dime. More importantly, the errors on your credit reports will be corrected – and having an attorney help you didn’t cost any money.
The Final Word
Credit reporting errors can end up causing serious damage to your credit. If these errors are not corrected, it is perfectly reasonable to sue, as compensation for the damage you’ve suffered. Since hiring an attorney for this sort of work doesn’t cost you anything, if you’re dealing with one of the errors we discussed earlier, you should seriously consider hiring a lawyer.
Don’t let the mistakes of credit bureaus hold you back. Protect your rights.
