Cleaning Up Your Credit

There are two sure-fire ways to clean up your credit. One is to take action that adds a positive history. Diversity is the key here. Do not apply for just department store cards, oil company cards, or bank cards, such as Visa or Mastercard. A vehicle loan, student loan, and signature loan are different types of credit, and an array of accounts, all current with low balances, increases a consumer's credit score. In the credit reporting business, an account type is called a tradeline.

The other way to clean up your credit report is to remove the negative history dragging down your credit score. In the credit reporting business, an account with bad history is called a derogatory. A derogatory can be accurate or inaccurate. A large fraction of consumer credit report files contain erroneous information. If your account contains incorrect information, such as a derogatory from a parent or child who shares your first name, then file a dispute.

Pay For Delete

You mentioned a pay for delete. A pay for delete is where a consumer negotiates a settlement with a creditor who is posting a derogatory account on the consumer's credit report. Creditors are required by federal law, the Fair Credit Reporting Act, to report accurate information to the consumer credit reporting agencies. However, they are not required to report any information to the credit reporting agencies. In other words, if a creditor reports something to the consumer credit reporting agencies about a consumer, it must be accurate. However, they could choose to not report anything about that consumer. Hence, a pay for delete.

In a pay for delete, the consumer will make deleting the entire account from their credit reports at all three major consumer credit reporting agencies a condition in their settlement. A lazy creditor may object and state that a pay for delete violates federal law. That is nonsense. Or, a creditor may object and state the consumer credit reporting agencies have a policy that does not allow pay for deletes. Again, nonsense. Or, the creditor may say that they have a policy against pay for deletes. Policies can be changed.

If you negotiate a pay for a delete, make certain the promise is in writing. A creditor that refuses to put any portion of a negotiated settlement agreement in writing is planning to ignore that condition.

Increase your chances for success in getting the creditor to agree to a pay for delete by offering a lump-sum settlement to pay the debt. For example, if the debt is $1,000, tell the creditor you will wire it $400 tomorrow if it will fax you a signed agreement stating the $400 is a final settlement for the debt, and that once it receives the $400 payment it will delete the account from your credit file at all three consumer credit reporting agencies.

Who Owns a Debt?

There is no certain way for a consumer to know who owns their collection account. Unfortunately, there is no registry or central market through which all collections accounts must pass. There is no "Collection Account Google." The closest thing is a consumer's credit report, and as discussed earlier, credit reports are full of errors and there is no law requiring creditors to report a debt's existence. Creditors, and especially collection agents, are motivated to report a collection account to the consumer credit reporting agencies because doing so creates incentive for the debtor to pay the debt. This explains why unscrupulous collection agents will report an incorrect date of first delinquency on a debt to keep it on a collection report for longer than 7½ years.

Debt Validation

If a collection agent demands payment of a debt an individual does not owe, or more than they owe, under federal law the individual can dispute the debt in writing. The formal terms for this process are "debt verification" or "debt validation."

A debtor should, as a matter of course, validate a debt when a collection agent attempts to collect the debt. Why? Just because a voice on the telephone claims that a debtor owes the collection agent money does not necessarily mean the collection agent owns the right to collect the debt, or that the debt is even owed.

According to Section 809(b), 15 U.S.C. § 1692g(b), if the consumer notifies the debt collector in writing within the 30-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

You can find a sample debt validation letter at the Bills.com debt self-help center.

If the debt collector has a bare account and the consumer seeks a debt validation, the collector has no means to validate the bare account debt. Without validation, the account is non-collectible if the debtor asks for the validation and does not receive it. That is why is is wise for a debtor to ask for a debt validation when a debt collector attempt to collect on an old debt -- the chances on the debt account still containing the full documentation diminishes with each passing day and with each debt collector who handles the file.

What is a proper validation? Account statements from the original creditor including payment history starting with the original creditor. Also, a copy of the original loan agreement or credit card application, or lacking that, account statements from the original creditor.

Under the FCRA, if a creditor cannot verify a debt it may not collect the debt, contact the debtor about the debt, or report it to the credit reporting agencies.

I hope this information helps you clean up your credit report, and help you Find. Learn & Save.

Best,

Bill

Bills.com