Debt Validations Letters
The Fair Debt Collection Practices Act (FDCPA) gives consumers the right to request that a debt be validated which can be requested with a debt validation letter. Debt validation is different from the verification process that can be done through the credit reporting agencies.
A request to verify a debt simple means the credit reporting agency requests that the creditor verify their records for accurate information. A debt validation requires that the collection agency prove the debt is the consumer’s responsibility and that they have the legal right to collect this debt.
Under the FDCPA, consumers have the right to ask for validity of the debt that the collection agency says is owed. Section 809 of the Fair debt Collection Practices Act gives the consumer the right to ask for debt validation to be sure whether you actually owe the debt to the creditor or not. To request the proof, a debt validation letter needs to be sent to challenge the validity of the alleged debt.
The right to request the debt validation applies to collection agencies not the original creditor. When a collection agency is assigned, or has purchased, the debt, they are not the creditor, they are collection agency and their actions are governed by the FDCPA.
The collection agency needs to present documentation proving the consumer does owe the money. Documentation from the collection agency should include items such as; proof that the collection agency has been assigned the debt from the original creditor or that the collection agency actually owns the debt and account statements from the original creditor that verify the credit agreement between the consumer and the original creditor as well as a payment history if the amount owed is in dispute. Generally, a simple list of the services or products sold that resulted in the debt is insufficient evidence to validate a debt.
The collection agency has to stop the process of debt collection until they are able to validate the debt within the first 30 days of notifying someone of the debt. If the debt collector does not verify the debt within 30 days, it is not allowed to continue collecting the debt. If the creditor or collection agency is not able to provide debt validation, they have to remove the item from the credit report.
Of course, the key for the consumer is that so many collection accounts and records are sloppy and inaccurate and therefore they cannot be properly verified. The validation process can definitely help remove collection accounts that are inaccurate and also remove collection accounts that may be valid but cannot be properly supported or validated by the collection agency.
To get the ball rolling, the consumer needs to send a request letter or debt validation letter to the collection agency asking them to validate the debt. The request for debt validation must be submitted in writing. If the debt is properly validated, send the credit reporting agencies a copy of the debt validation letter along with the return receipts to get the account removed from the credit report and ultimately improve the credit score.
Credit Scores and Collection Accounts
Collection accounts will almost always have a significant negative impact on a credit score.
A collection account is a listing in a credit report that represents a consumer account that has been assigned to a company to collect on an unpaid debt obligation.
If a consumer stops making the contractual payments on an account or debt, the lender or creditor may assign the account or sell the account to a collection agency. This action turns a credit account into a collection account. The collection account is the account with the collection company that is collecting on an unpaid consumer debt and is generally not the original creditor or original lender.
The original unpaid obligation or debt may be from a credit card debt that was unpaid, medical bills, utility bills, or any other contractual debt that was left unpaid and then sent to a collection agency by the original creditor. The collection account is the account with the collection agency as opposed to the delinquent account that exists with the original creditor.
The original creditor’s delinquent account may also be reflected in the credit report. For instance, a collection account for an unpaid credit card balance may be reported to the credit reporting agencies as the original delinquent account with the credit card company, usually as a charged off account, as well as the balance now being collected by the collection agency.
A collection account may also be reflected in the credit report without a corresponding original creditor account. As an example; cell phone companies and medical bills that are unpaid may be sent to a collection agency to collect the unpaid delinquent debt and these creditors will not report to the credit reporting agencies, yet the collection agency the debt is assigned to will most likely report to the credit bureaus or credit reporting agencies.
A credit score evaluates collection accounts on an individual’s credit report according to when the collection occurred. Individual credit scores weigh collections on a credit report according to when the collection occurred. Generally, the more recent the collection, the more it’s going to impact the credit score.
Collection account records, no matter how recently opened, all should expire and be removed from an individual’s credit report seven years after the last 180-day late payment on the original debt.
Note that closing an account doesn’t make the record in the credit report go away. A closed account will still show up on a credit report, and its status will be considered in the credit score calculation. Paid collections and unpaid collections are generally scored the same; the impairment to a credit score occurs as a result of the account being delinquent. .
Since the collection account is different from the original creditor account, whether it is a credit card or a medical bill, and the collection accounts cannot report a payment history since technically there is no payment record with collection agency only with the original creditor then there will not be a payment history from the collection agency in the credit report and the credit score simply evaluates the date of the account and the amount.
It is always worth the effort to investigate the validity of collection accounts and the amount owed to see if they can be removed from a credit report for inaccuracy, which is common.
Changes to Credit Score Calculations
In 2007 Fair Isaac Corporation, creators of the FICO credit scoring system announced that they would change how their credit score models evaluate credit report data. The new credit score, referred to as FICO 08, was delayed in its implementation until the second half of 2009.
The FICO score model is kept under wraps by the company that created it, but it is always a good idea to obtain a general understanding as to what makes a good or bad credit score. With the knowledge of what drives a credit score, consumers can either engage in good habits to maintain a good credit score or work to improve an existing low credit score.
The changes to the current FICO scores are taking place in a few key consumer sections that include opening new accounts or having prior derogatory information on select accounts and authorized user accounts.
The new version is less damaging for consumers that have had limited credit problems even in severe situations. The score gives less weight to isolated problems as long as the majority of other active credit accounts are in good standing.
The new formula gives less weight to minor derogatory or negative accounts such as small collection accounts and public records in which the original debt was less than $100.
The new credit model also reduces the weight of authorized-user accounts by reducing the potential score impact associated with the abuse of authorized user accounts.
Adding a spouse or child to a credit card as an authorized user has long been a good way to improve that person’s credit score, since the good history already established on the account had generally been imported to the credit report of new authorized user. Some mortgage brokers and credit repair companies began abusing this feature by “renting” authorized-user accounts from individuals that had good credit accounts and selling them to individuals who wanted to boost their scores.
According to company, they have developed technology that reduces any impact on the new credit score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit accounts.
The new credit score model uses the same 300-850scoring range, score reason codes, minimum scoring criteria, and inquiry treatment as previous versions of the score.
Credit bureau scores are often called FICO scores because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company but not all credit scores are FICO scores. FICO scores are provided to lenders by the major credit reporting agencies. The FICO score is the credit risk score used by most lenders in the U.S.
Beware of the Little Things that can Hurt Your Credit Score
Countless articles regarding credit inform consumers about the big events that can have a negative impact on their credit score. But, many consumers fail to realize all the little transactions or little known transactions that may have a fairly significant and harmful influence on their credit score.
We all now the importance of good credit and a good credit score in our society with its wide ranging impact from credit and borrowing to employment to insurance and housing and more. Most consumers are also well aware that the higher their credit score the better. And most consumers are aware or becoming more aware of the basics for keeping their credit score high. What some consumers fail to realize is all the lesser know actions that can really harm a credit score.
The basics on credit and credit score management are covered within this site as well as other sources on credit management. These are the key elements that to avoid in order to maintain a high credit score. They are the actions that can have a clear detrimental affect on your credit report and credit score. The obvious actions include late payments on credit accounts that are in a credit report such as credit card, car loans and mortgages, carrying too much credit card debt and more.
But there a lot of consumers and lending professional who do not know all of the not so obvious factors that can harm a credit score. This list reviews the so not so obvious actions to avoid as well as some actions that involve common sense but, where some consumers are not aware at just how damaging their action really is.
#1. Having credit accounts with balances near their maximum amount available. The percentage of available credit used is a key factor in determining a credit score and having a credit account, even if it is a balance transfer on a credit card to consolidate debt, at or near its total available credit limit will eat up all of the available credit and will lower a credit score.
#2. Short lengths of time between new credit accounts or having multiple credit accounts opened in a short period of time. Even consumers with good credit who open multiple accounts will find their credit score may drop due to opening new accounts in a short period of time.
#3. Having late payments accounts turn into collection accounts that in turn become accounts listed in the public records section of your credit report. Public records like judgements, liens and bankruptcies can have a big, negative impact on a credit score. These types of accounts can have a big impact even when the dollar amount is relatively small.
#4. Having too many store credit cards and too few bank credit card accounts. These accounts have a lower value as they are evaluated by credit scoring models and therefore having more of these accounts and fewer heavier weighted credit accounts can bring a credit score down.
#5. Having no recent credit activity or no recent revolving account activity such as credit card balances and monthly payments. It can actually hurt your score if you pay off your balance in full each month or simply don’t make transactions with credit. Without a monthly payment history, the credit score models have very little data to work with.
#6. Collection accounts and more collection accounts. Collections accounts may rank as one of the more obvious credit score killers, and there are now more types of accounts that are being sent to collection companies that report to credit reporting agencies which will shift a credit score lower. More and more local governments are reporting unpaid parking tickets, library fines and other delinquent fees to collections agencies which may get reported to the credit bureaus and impair a credit score.
#7. Creditors showing delinquent credit records that normally don’t report to credit reporting companies are now reporting in greater numbers. This can be especially true on those customers with a sketchy payment history. The biggest example of this change is the utility companies such as the electric company, gas company, phone company, etc… More utility companies are reporting seriously delinquent accounts as well as customers that are simply 30 days late to the credit reporting agencies which is definitely going to hurt an individuals credit score.
#8. Excessive inquiries. Every time someone looks at an individuals credit report, it is considered as an inquiry and stays with the credit history. Too many inquiries can lower a credit score since it is indication of someone opening more credit and incurring more debt.
And don’t forget more of the basics that will damage a credit score such as having high credit card balances, high balances relative to available credit and late payments.