Collection Agency & Credit Report

Four good questions. I will answer them slightly out of the order you asked them for a reason that should become apparent.

Validate debt

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.

It is especially important for a debtor to validate a debt that does not appear on their credit report, if the debt is paid, or if the debtor has no recollection of the existence of the debt. 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. See the Bills.com resource Debt Validation to learn more.

Collection agency & original creditor

An original creditor may hire a collection agent to collect the debt, or may assign (sell) the debt to a collection agent. Most consumer debt contracts give the original and subsequent creditors the right to assign the debt. A collection agent buying a debt will do so for 5 to 50 cents on the dollar. The collection agent has the right to collect the entire balance due plus interest.

If the collection agent is working for hire then when it remits your payment to the original creditor it is the responsibility of the original creditor notify the credit reporting agencies (typically Equifax, Experian, and TransUnion) of the change to the account's status. If the collection agent purchased the collection account it is the responsibility of the collection agent to notify the credit reporting agencies (CRAs) of the change in account status. Failure to report accurate information to the CRAs is a violation of the Fair Credit Reporting Act (FCRA).

Regarding your first three questions, it is incumbent on either the original creditor (if the collection agent is actually functioning as an agent) or the collection agent to report settlement of the debt to the CRAs. If you wish to underline this point you can add language to the settlement agreement that states something like, "The creditor agrees to report this settlement to the credit reporting agencies in a timely manner that is compliant with the FCRA." However, since reporting the settlement is a federal law with which the creditor must comply, adding that language is redundant.

Unasked question

The question you are not asking but should is, "What is the creditor reporting to the CRAs?" This is a negotiable item with many creditors. If possible, you will want to avoid the notation Settled for Less Than Full Balance. Such a notation is a clear red flag to creditors that you did not repay the entire balance of the loan.

Instead, you should consider a Pay for Delete. A creditor is under no obligation to remove the account in question from your credit file, but if you can negotiate to have the account removed that would result in an immediate increase to your credit score and forestall any questions about that account.

I hope this information helps you Find. Learn & Save.

Best,

Bill

www.bills.com/