Collections & Negative Accounts
Step 3
Once you begin this step, you will probably find out quickly just how frustrating it can be when dealing with a collection agency. We will provide you with several options below, and we feel one of the many options will work well for you. There is no guarantee that a collection agent will work with you, but with enough persistency, they may give in. Before we go any further, there is 1 rule you must always follow when dealing with a collection agency: Never Trust Them, Ever!
We have a file below for you to use as a template. It's a basic spreadsheet, with examples of having all negative accounts from all your credit reports listed in 1 place for easy reference. As you scroll down you will see a brief description of what we did. By doing this, you won't have to keep jumping from one report to the other, and as you get things updated or deleted, you can make the updates/changes right from your spreadsheet to keep for your records.
Here's
and example, using a basic spreadsheet, on how you could keep multiple
negative accounts in order, which credit report(s) they are being
reported to, as well as your credit report numbers.
Details:
Negative accounts dramatically lower your score. The only way to improve your score quickly is to get negative information off of your credit report.
One of the first steps you can take is to dispute all negative accounts online. This will work sometimes, but not always. When you dispute a negative account, the reporting agency will ask the negative account holder to verify the account. This is as simple as them double checking the account, and signing on the account as legitimate.
In addition this step is very important for a successful outcome, consumers have a private right of action to sue the furnisher under FCRA 623(b) - USC § 1681s-2(b) in case they keep reporting unverifiable or inaccurate information. If the furnisher doesn't get the dispute through the credit bureau and that fact is included in the complaint, the lawsuit will be throwed out on their first motion. This is why so many FCRA lawsuits are won by the defendant. See:
No private lawsuits are possible under 623(a) - USC § 1681s-2(a) only the FTC can enforce that part of the FCRA. That's also a common mistake on consumer FCRA complaints.
However, when an account has been sitting around for years, a collection agency may find it worthless to take the time to verify an account, especially when they believe they'll never collect on it. This is usually the case on older (3+ years old) collection accounts that are fairly small amounts (under $500). When that's the case, the credit reporting bureau will remove the account simply because the collection
agency wouldn't verify the account.
This is an option you can take, and it may work. However, usually you will need to do more to resolve the negative account. Working with the collection agency or the creditor is sometimes your only option. Below, we will go over different cases and the course of action you can take. It is important to note, just paying off a collection will not make it go away and it may actually hurt your credit score in some circumstances. As you read on below, we will show you how to avoid this mistake.
There are different ways to go about this depending on the type of negative account. We are going to give you information on how to deal with various types of negative accounts. It is important to note, these options require your ability to pay, either in full or in part, the negative accounts. So you may need to come back to this once you have the funds needed. Also, only dispute negative accounts that the credit
bureaus are reporting on. You do not want to dispute an account that is on one credit report to all the credit reporting agencies. The negative account may not be on all your credit reports. If you do dispute an
account which isn't being reported it may raise a red flag, and they make look into it and begin reporting it. So check and re-check your reports, and only dispute accounts to the reporting agency which is reporting it.
What happens is credit disputes tell the collectors that the consumer is now very concerned about credit ratings, perhaps seeking a new mortgage which would be a perfect opportunity for them, the first thing they do is pull a new report looking for new credit inquiries. Many banks want all negatives paid before closing, some times even using proceeds from the mortgage. Disputes on collection accounts increase collection activity. They will push it as much as they can and usually results on the account listed on bureaus where it was not included before, account updates causing a score drop, phone calls and letters, usually it's all temporal, it gets worst before getting better. A very little known fact...
Another little known fact: The mandatory FCRA comment included on disputed accounts has a very positive effect on FICO scores, something like "Consumer disputes account information" at the remark field reduces the negative influence. Credit reporting agencies and fair Isaac (makers of FICO score) deny this but I see it happening every day, even if you cannot force them to delete you can always keep the account in dispute. They know this so usually the comment is deleted after a couple of months, it only takes a new dispute with the bureaus to put it back.
Another thing you should look into is the statute of limitations (SOL) for your state. After the SOL are reached, the negative accounts cannot be garnished from your wages, or you cannot be sued for the repayment of the negative account. After the SOL, negative accounts cannot be reported on your credit report(s). Below is an excellent site which lists each state and it's SOL. Click below to find out the SOL of your state:
State By State Statute of Limitations
This is actually the first thing to look into. Nobody should pay a debt out of SOL. The collectors can sue and some do expecting to get a default judgment but if the consumer shows up in court to defend the suit, the expired SOL is an absolute defense. There is case law making such a collection lawsuit a breach of FDCPA. For SOL apply first the state named at the "Choice of law" paragraph on the credit agreement, if they can produce that and have it admitted on record, only in the absence of that doc the consumer's state apply.
Still Opened Negative Accounts:
The first type we will go over is negative information on an open account. For example, a late payment or missed payment on a still open account has a negative impact on your score. There is little you can do to remove this information. The best advice we could give in this situation is to call up the creditor and ask if they could please remove it. If the late or missed payment was a rare occurrence they may be willing to work with you. They may also be willing if you explained that was a tough patch (be fairly detailed) in your life but it won't happen again and then ask if they could remove it. They probably won't if you have a habit of missing payments or being late. If they do not comply, just continue making payments on time, as the missed payment or late ages, it will have less and less impact on your score.
If you are way late on a payment 60+ days and still not current, you will need to get current ASAP. Call the creditor up, explain to them you were having financial difficulties. Also, explain you want to get current and stay current, as things have turned around for you. At that point, see if you can strike a deal with them. Tell them you can't afford the negative info on your credit, and ask if you stayed current for 6 straight months, would they remove the missed payments? Both of these situations are not guaranteed to work, but giving it a shot doesn't hurt. It's important to remember, creditors do not want to damage your credit, all they want is to make money. Getting paid on time every time is their #1 concern. If they feel confident you will remain current if they make a deal with you, often, they'll make a deal.
It's important to note, it doesn't hurt to try working out deals with creditors. So don't be afraid to ask.
Collection Accounts:
Next, dealing with collection agents: Collection accounts can have a big impact on your score. You want these accounts off and fast. Unlike dealing with creditors in which the account is still open, collections are accounts in which the creditor has basically given up on and at that point the creditor will assign or sell your account to a collection agency.
The first thing you want to remember when dealing with a collection agency: "Never Trust Them." Our Credit Law Guide will direct you to the "Fair Debt Collections Practices Act," we recommend you take the time to read it, as well as other articles/laws listed there. This will explain what collection agents can and can't do. Our partner site, CreditLibrary.org, has a database where you or anyone can input info about them. This info include things like whether or not they offer pay for deletes, settlement amounts, whether or not they held up their end of the deal and more. Creditlibrary.org is a new, innovative site, completely dedicated to providing information about both creditors or lenders as well as collection agencies. Because this site is new (the site was published in Jan 3, 2010), the database may not have all collections yet, but it doesn't hurt to look. Here's their Search Database:
You can add to this database as well! It's easy and free, so if you have information to contribute, whether it's about lenders or collection agencies, you can do that here:
Creditor or Lender Info - Collection Agency Info
We recommend starting with the newest collection accounts on your credit report, this advice is quite the opposite found on several sites online. The reason we suggest going this route is simple, the newer the negative account, the harder of an impact on your score.
Call the collection agency up or write to them and ask them if they would consider a "pay for delete." Basically, you pay this account off in full or for a settled amount and in return they will remove the negative account from all the reporting agencies. If they happen to say yes, don't jump right into it, work out what amount of money is needed to settle this account (if communicating by phone), if writing - offer the amount you would want to pay in exchange for deleting the negative account). Once you know how much they want, tell them: "Thank you, I'll be sending you an agreement which needs to be signed and returned to me. As soon as I receive the signed agreement, I will send you my payment." Don't forget to get their mailing address and name of the person you spoke with; it also wouldn't hurt to get the name of a manager at that agency.
Here's an example of a Pay for Delete Agreement
What to do when they say: NO!
If you call them up, offer a pay for delete and they tell you, "NO, we do not offer any pay for deletion deals." Stay calm, simply tell them thanks, and hang up. After that, get a "pay for delete" letter prepared for them, but add to it, if they decline this offer the next offer will be significantly less and won't be offered for at least 2-6 months after this offer expires (30 days). If it happens to be a medical collection account, include a print out of the new proposed bill: H.R. 3421 or at least mention it in your agreement. Find out more about H.R. 3421 and what it means to you.
One example of how this once worked, there was a collection agency that refused to help some one out and wouldn't agree to a pay for delete deal. Every 3 months as followed, a new letter was sent to this collection agency and each offer with it was 10-20% less than the original offer (which was a full payment offer originally). It took about a year, but eventually, there was an offer from this collection agency: "Pay 1/2 of the total owed and we will delete this account from all the bureaus reporting it."
It didn't happen over night, but if you remain persistent, they may very well give in to your demands.
Next step, if they refuse any pay for delete deals, you should dispute this debt through the credit reporting bureaus. This is something the collection agency should already see coming, but it's something you should do. The first part in this is disputing the info to the credit reporting bureaus and have the collection agency verify the debt. Verifying debt can be something as simple as the collection agency sending over "verification" to the reporting bureaus. It's important to realize the reporting bureaus are only reporting what's been reported to them. If the collection agency or any creditor reports something to the bureaus as accurate, then they'll report it as such. Verification typically makes the collection agency double check the account numbers, date(s), amount owed, and other basic info. There's not much work involved with verifying a debt, but the important thing is requesting verification. You never know, they may overlook the request, and if so, the negative info will have to be deleted. It's important to note, it's unlikely that will be the case, but there are plenty of other options for you to consider...
Requesting full validation of the debt is your next step or should we say your next request. Debt validation becomes much more complicated for the collection agency. So what is requesting validation of debt?
The collection agency must prove they own the debt or they have been assigned the debt. In other words, they must be able to provide something that proves they legally have the right to collect or attempt to collect on this debt. Something like a contract between them and the original creditor would prove they have that right. Many collection agencies will not want to hand over contract agreements, so to avoid this option, they may send something like account statements from the original creditor. This would also be considered proof. If you truly feel they are not going to work with you, you might as well get down to requesting every possible (legal) request. Depending on the type of debt, this would include: complete payment history (starting from the beginning with the original creditor), all interest and other additional fees added to the debt total (if applicable) by both the original creditor and the collection agency. In other words, request what payments you have made, what fees you have paid, what fees they are seeking, what interest rates were you charged (with both the original creditor and the collection agency ~ if applicable), and any other applicable questions you can relate to the history of that particular account. You can also request for the original contract between you and the original creditor. On a side note, depending on what the collection agency sends as proof they can collect this debt (account statements for example), this would satisfy the request for the original contract.
While you may think this should be a breeze for them to obtain and send to you as proof and/or validation, you should also note that in many cases collection agencies buy bad debt in large packages. Meaning they're not a collection department on behalf of the original creditor. So one collection agency could have multiple bad debt accounts from multiple original creditors. Have them think they are going through all this trouble and you still
will not pay unless they agree to a pay for delete deal. The more time
and work they have to spend on an account, in which they feel you are
not going to pay on, the more likely they may be to take the pay for delete deal while
they can. The tough collection agencies, may try yet another scare tactic by sending you a summons to appear in court, while you shouldn't ignore this at all, you also shouldn't worry about this summons... There has been precedence set by the courts that filing suit before validating a debt within the 30 days, may not hold any water... The case that set this precedence was Spears vs. Brennan No. 49A02-0003-CV-169, it had to do with this, as well as other violations under the FDCPA.
There are some collection agencies that are just simply impossible to work with. They will push the envelope on what's legal and what's not. In situations like that you can send them a "Cease and Desist" letter. Ultimately, if you send them a "cease and desist" letter, they are required by law to only communicate by mail. This is a great way to get the pesky ones off of your back and stop them from calling you.
Cease & Desist Example
Just paying off a collection account and not getting it deleted, will do little if anything to improve your score, and in some cases it may actually hurt your score. If a collection account has been sitting in your credit report for 2+ years with no activity, it will have far less impact than a collection account with new activity. Paying off or settling on the account will bring new activity to this otherwise dying off account. The new activity (updated info) on this account would be "paid in full" or "settled" - just having new activity could very well hurt your score. Of course as this account ages again, it will have less and less of a negative impact. That's why it is important to offer a "pay for delete." Having a paid or settled collection will do little if anything to improve your score, and it may actually do more damage.
How do you know how much to offer on a settlement?
There are some general ideas floating out there on the web, and most have a good point or two. In any settlement offer you should also include with it a pay for delete deal. So offer a percent of what's owed and in return the collection agency also has to agree to deleting the negative account from all reporting agencies. What we think is the best - Do your homework. If the collection agency is a publicly traded company, you could go to SEC Filings and look them up. Once you look them up, you will be able to see what they paid for bad debt and what is its worth if paid in full. For example: If you see that the agency holding your account paid 1 million dollars for an estimated value of 10 million dollars in debt, you would be able to see that they paid 10% of retail or 10 cents on the dollar amount owed. So, if you owed $1000.00, it would be safe to assume they are in it for at least 100 dollars, plus a % for overhead and accounts they cannot collect on. As a side note, the average amount paid is around 5 cents on the dollar.
Usually, when the collection agency notices you did your homework, they are less likely to try to pull one past you. Going back to "what should you offer," there's 2 ways to look at it, you can offer low (20% or so of the full amount) and if they take it, you make out. However, if you do not want to negotiate back and forth and you have the money available, offer a higher percent (50-80% usually will do it), especially if the account is close to or over 2 years old. So the more you offer, the more the likeliness of getting the pay for delete deal. If they can make money on you, they may be willing to work with you. However, if you simply do not have it, offer low.
Now, if they are not a publicly traded company, the above is something that won't work. It is safe to assume on the average, debt collectors pay around 5 cents on the dollar. It is important to note, not all collectors own the account or bought the account. An account could be assigned to a collection agency. If they collect, they will pay the original creditor a percentage and keep a percentage. The more homework you do, the better off you will be.
Do not pay anything until you receive a signed agreement, preferably a "pay for delete" agreement! If there is no signed agreement than there is no agreement. Verbal agreements usually won't stand if you had to go to court over it, and they are less likely to comply if they didn't sign anything.
Once you received the signed agreement, send your payment. We strongly suggest not paying by check, debit or credit card, or anything that holds your personal information on it. The best thing to do is get a money order or cashier's check for the amount you need to pay. Give it about 30 days and check your credit report to see if they deleted the negative account if that's what was agreed upon. If you see that it is still on your credit report, dispute it online and call the collection agency to complain. In most cases they will delete the negative account without an issue, but not always. Stay persistent!
Negative information not removable or cannot be deleted:
Some negative accounts or information is simply not going to be easily removed. Usually this will consist of things like bankruptcy or a judgment. You may have read several times how we feel about "credit repair companies" on our site, but if you want to go with a company that truly is different, our recommendation would be BCR Consulting or "Better Credit Reports Co." They have a setup where you do not pay unless you see results and/or negative information deleted. That's it - a credit repair company confident enough in their work, so much so, they only get paid based on their performance. This is completely different from most credit repair companies with either the 100+ dollars to "set up" your case plus other payments or the companies charging 50-100 dollars a month, which to us, gives no incentives to get results to any company collecting per month. Anyways, if there's a couple accounts you are having trouble with, you could look into using BCR's professional services to help out with the tricky accounts and the best thing about it, you only pay for their service once they get you results. You could also use their service if you simply do not have the time to commit to credit repair.
You can still work on improving your score by going to our next step. You may have to allow this negative information to age off of your credit report. The time it takes to age off is generally 7 years, but can be as much as 10 years in some cases. Each month the negative information remains, it will have less and less of a negative impact on your credit score. So if you start opening and maintaining positive accounts now, while the negative information is aging, you can start to see improvements. Plus, by the time this un-removable negative information ages off of your credit report, you will already have a solid amount of positive accounts in your credit file. You may think it's impossible to get approved for anything but we have a solid plan for you in step 4.
After you have worked on your negative accounts, and either got them removed or waiting for a response, you can move on to the next step. Step 4 will show you easy ways to get approved. Having positive accounts on your credit report is as important, if not more important than getting negative accounts off. Think about it, negative accounts will show a lender what you have done in the past, current open positive accounts will show lenders what you are doing now...
