Let’s say you get an email from Credit Karma. You’ve been monitoring your credit regularly, and trying to stay on top of your finances.
Unfortunately, this isn’t one of those fun emails, informing you that your credit score has increased. Rather, you learn that a collection account has popped up on your credit reports. What to do now?
Suppose the collection is for a few hundred dollars, for an old cable TV bill. Perhaps you don’t recognize this item, or you believe it’s an unfair debt, and you shouldn’t have to pay it. However, let’s assume that the item does in fact belong to you – despite your disagreement with the cable TV provider.
Either way, you dispute the item with the credit bureaus. You get lucky, and it disappears from your credit report – for a while. Success!
Unfortunately, that isn’t the end of the story. About 6 months later, the same debt reappears on your credit reports (you know this because the amount they claim you owe is the same, and the same original creditor is listed).
The name of the collection agency is different from when you first disputed the account. Your credit score is once again depressed. What happened?
Let’s start from the beginning. When you stop paying on an account you owe, after 120 to 180 days (depending on the type of account), the account is charged off. What does this mean?
The original creditor (in this case the cable company), treats your account as a loss (for tax purposes), and tries to collect on the debt. They might do this on their own, or hire a debt collection agency. In some cases, the cable company might have even sold the debt to a debt buyer – a firm which purchases and then collects on debts.
In any case, the company which is now collecting on (or owns) this cable TV debt, is allowed to report the account to credit bureaus, assuming that it has been less than 7.5 years since you first stopped paying the cable company. If it has been more than 7.5 years since that date, they cannot report the account to credit bureaus. Doing so is a violation of the Fair Credit Reporting Act.
The collector or new debt owner is also required to report the account accurately. If you look at your official credit reports (you can get them from Annual Credit Report), you’ll see a variety of fields listed. These include the amount owed, the date the collection account was opened, the date of last payment, and more. Failure to report information to credit bureaus accurately may be a violation of the Fair Credit Reporting Act (FCRA) as well as the Fair Debt Collection Practices Act (FDCPA).
If you believe a debt is being reported inaccurately to the credit bureaus, or that the debt is too old, or is not verifiable, you are allowed to dispute the debt with the credit bureaus. The credit bureaus must inform the debt collector that you’ve disputed the debt, within 5 days of receiving your dispute.
The debt collector then has several weeks to investigate your dispute, and decide whether the account is being reported properly. If they cannot confirm that the account is being reported to credit bureaus correctly, the debt collector must correct or delete the account.
Sometimes, debt collectors simply choose not to investigate an account, and fail to respond to the dispute. In these cases, the account will directly be deleted.
Of course, let’s remember that in the example we’re discussing, the debt in fact belongs to you. Perhaps the collector chose not to respond within 30 days of the dispute being filed – in which case, the account will be deleted.
If a collector responds later, however, confirming that the item is accurately listed on your credit reports, the collection can reappear on your credit reports, as long as a credit bureau provides written notice within five days of the item being reinserted, along with contact information for the collector. In most cases, however, credit bureaus fail to provide this notice – which offers you grounds to contest the account again later.
In other cases, a collector might not respond to a credit bureau dispute (leading to the deletion of the item from credit reports), but instead transfer the debt to another collection agency. The original debt collector will stop reporting the account to the credit bureaus.
The new collection agency could then choose to start reporting the debt to the credit bureaus (again, assuming that it is less than 7.5 years since the date your first stopped paying on the original account). You might again dispute this debt with the new collection agency, which might either verify the debt (leaving it on your credit reports), or simply choose to delete it.
As you can see, this becomes a game of “whack a mole.” A debt gets deleted, then reappears with a different collection company. Rinse and repeat.
There’s a reason for this. If a debt belongs to you, and it isn’t too old, and you haven’t paid or settled the debt, collectors have good reason to keep transferring and attempting to collect on the debt.
So, what’s the solution? Settling the debt, in a way which removes it from your credit report. There are a variety of ways to accomplish this. One is the “pay for delete” technique, where a creditor agrees to delete a negative credit account, in exchange for payment of part or all of the debt. Another is the “settle and dispute” technique, where you settle a debt, and the aggressively dispute the debt with debt collectors and the credit bureaus.
There are lots of ways to permanently resolve a debt, and have it erased from your credit reports. This is the only surefire approach to removing a collection which otherwise appears legitimately belongs to you. Disputing accounts, and having them removed, can lead to temporary success, but isn’t a lasting strategy.
If a debt does not belong to you, or a debt is too old (i.e. it’s been more than 7.5 years since the debt first went delinquent), or the amount owed on the debt is incorrect, then you need to take a different approach. You should point out these facts to both the credit bureaus where it appears, followed by the debt collector, by formally disputing the account.
A credit bureau which continues to report an outdated or innacurate negative account, can be sued under the Fair Credit Reporting Act. A debt collector can be responsible, depending on the specifics of the case, under both the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act. If either of these laws are violated, you may be able to have an attorney represent you for free (since the credit bureau or debt collector will pay their attorney’s fees, if you win), and collect damages in court.
Resolving collections can take time and effort. However, it’s far better to invest this time and effort, than to try randomly disputing collections, having them temporarily removed from your credit reports, only to reappear later. Do things right today, and avoid headaches tomorow.
