When it comes to credit scores, a collection account is one of the most harmful items to have on your credit report. Debt suckers, more commonly known as collection agencies, often improperly report the date a credit account went delinquent, which results in collection accounts staying on credit reports longer than the law allows.
According to Ethan Dornhelm, vice president of scores and predictive analysis at FICO, 23% of consumers have a collection account on their credit report. Those accounts are the most problematic for consumers. The Consumer Financial Protection Bureau says collection accounts comprise 40% of all disputes challenging the accuracy of information reported on consumers.
Under federal law, adverse items may remain on your credit report for seven years. That same law allows consumers to file free disputes when information on their credit report is inaccurate. The most misunderstood aspect is determining the date of delinquency (DOD), which is when the account was considered delinquent by the creditor. Even experienced credit repair specialists get this wrong. The reason is that the law changed and they continue to use outdated methodology in determining the DOD. Prior to 1997, calculation of a DOD was regulated by guidelines put out by the Federal Trade Commission. "A consumer's repayment agreement with the creditor or a collection agency may be treated as a new account that has its own seven year period," the FTC decreed. Congress, however, changed that with the Credit Reporting Reform Act (CRRA).
That law provides that the seven year period starts "upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action." In simple terms, the DOD is six months from the time you were consider to be delinquent on the account.
Debt suckers receive a fee to collect a debt, and some of them buy the debt outright. They only make money if you pay the debt. A common practice is to report the collection account as a new account. For consumers, that can mean the account is several years old, but it is being reported to the credit bureaus as a new collection account that reports the DOD as when the debt sucker created the account.
Let's say the account went delinquent two years ago. Under the CCRA, the account must be removed from your credit report in five and a half years. The credit bureaus, nonetheless, operate on the information given them by the reporting entity. Under the above example, the collection account remains on the consumer's credit report for two years longer than the law allows. The consumer then suffers a decreased credit score over that period due to the improperly reported DOD.
When confronted with a reported collection account, a consumer's first order of business is to assure the DOD is correct. This is done by checking the records on the delinquent account to discern when the last payment was made and when the creditor considered the account delinquent, which is typically 30 days after the payment was due. That is the DOD according to the CRRA. If that date does not match the DOD the debt sucker is reporting to the credit bureau, it is time to file a dispute.
That is properly accomplished by compiling documentation to support the proper DOD. This documentation should be sent with the dispute you send to the credit bureau and collection agency. There are legal reasons for filing the dispute with both, but that is a subject beyond this article.
Allowing an outdated collection account to remain on your credit report results in a lower credit score and higher interest rates. Don't allow debt suckers to inflict more damage to your credit score than the law allows.
