(Not So) New Threats to Your Credit
Liz Pullium Weston talks about a growing breed of agencies using collection companies to try to reclaim money owed to them. We all know to expect any unpaid or late payments to credit card companies to show up on our credit. Would you be surprised to see a fine from an unpaid parking ticket? An overdue library book? How about a fitness club you decided you didn’t want to be a part of anymore?
A growing number of local and state agencies are using private collection companies to boost their revenues. More than 600 public libraries from Eugene, Ore., to Broome County, N.Y., turn unpaid accounts over to private collectors like Unique Management Services. Cities and courts hire others, including Municipal Services Bureau, to track down overdue parking, traffic and court fines.
Many collection agencies quickly report these overdue accounts to at least one of the three major credit bureaus, and the black marks send consumers’ credit scores tumbling. Anyone who’s had a spat with a phone company, health club or an insurer turn into a collection knows that this is a pretty big club to waive over the heads of consumers.
It’s not all that uncommon. Bally Total Fitness does it frequently. Some of the collection agencies used have been cited by the Federal Trade Commission for their illegal collection practices. They are very serious about getting their money.
What do you do if you see one of these mystery collection accounts on your credit report?
Dispute it to the Credit Reporting Agencies. The creditor/collection agency has 30 days to respond to the Credit Reporting Agency before the mark on your credit is removed. The Federal Trade Commission has a page on how to dispute credit report errors, that includes a sample letter to the Credit Reporting Agency.
If the creditor can prove that you owe this money and is responsive to the Credit Reporting Agency, talk to the creditor about working out payment but try to work out an agreement where they will remove the mark from your credit report.
EXCEPTION: Hey, there’s one to every set of rules, right? IF AND ONLY IF this is definitely your debt and the debt is getting old, say 5 or more years where there has been no activity on your credit report from the creditor, you may consider holding out until it gets removed at 7 years. Disputing or calling the agency to get them to prove the debt can remind them that you are out there and are interesting in clearing up your credit report - a prime time to approach you about settling and renewing their persuit of the debt. New activity on the debt listing on your credit report can start over the 7 year waiting period to get it removed. Also, the more current the debt is, the more it affects your credit score. If this is NOT your debt, you should always do everything you can to get it removed your report.
Obviously, you don’t want to make a habit of getting out of debts. That’s a bad habit to get into. The primary goal should be to improve your credit, though, and if the collection agency does not follow up on you owing the money, you should take advantage of this time and get them off your back for good!
ADDENDUM: Per Elana’s suggestion, I should mention that the statute of limitations for debt collections are different on a state to state basis. Just because there’s something on your credit report, it doesn’t mean that legally you can be sued over it. When I mentioned 7 years above, it is solely for getting collections removed from your credit report. Keep in mind that acknowledging any debt as your own should only happen if you plan to actually pay the debt because it can restart the statute of limitations.
Related Posts:
July 12th, 2005 at 5:13 pm
The statute of limitations differs from state to state. So your exception my have an exception in the number of states.
Here’s a list of the statute of limitations for various states. Notice how in Massachusetts it’s 6 years across the board, but in Pennsylvania it’s 6 years for some and 4 for others. Know your statute of limitations.
July 12th, 2005 at 5:17 pm
“The Statute Of Limitations only covers lawsuits, and SOL expiration does not affect other types of collection action or reporting of the account to credit bureaus.”
I’m talking purely from a credit report standpoint.
July 12th, 2005 at 5:17 pm
However, the collection agencies can’t legally come after you for the funds after the SOL has run out.
July 12th, 2005 at 5:27 pm
Just because legally they can’t, doesn’t mean they won’t.
I did a write-up of this article on a bulletin board I’m on: http://moneycentral.msn.com/content/Savinganddebt/Managedebt/P74812.asp
Zombie Debt Collectors Dig Up Your Old Mistakes.
Here’s a nice little thing from the article, “the smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions.”
Basically old, old debts get sold for pennies on the dollar and start getting persued again. If the person admits to it at all or pays anything towards it, it can revive the SOL.
I was going to save this for a whole, other write-up.
I can edit to mention SOLs, but I was solely talking credit reports and even if they’re past the SOL, it can still show up and hurt your credit.