You have three issues: Preventing yourself from being a scam victim, the dates on your credit report, and how to make a fair deal with a collection agent.
Collection Agency Scams
Your first, and most important task is to make sure the collection agent has the legal right to collect the debt. No one wants to be scammed. For their part, honest collection agents want to collect debts they own a legitimate right to collect fairly. Dishonest collection agents and scam artists profit from confusing consumers unfairly.
When someone claims you owe them a debt, your first action should be to validate the debt. There are two reasons to validate a debt:
- A proper debt validation establishes the collection agent’s legal right to collect the debt. It cannot collect a debt it cannot validate. Debt validation is essential when two or more collection agents try to collect the same debt from you.
- The older the debt, the less likely it is for a collection agent to validate a debt successfully.
If a collection agent provides insufficient information when it tries to validate the debt, send it a notice of insufficient validation, in which you explain why you have no legal obligation to pay the debt.
Resetting Dates On Your Credit Report
When an original creditor sells a delinquent debt — called a collection account — to a collection agent, both companies will appear on the consumer's credit report. The dates each one took ownership of the account should also appear, making it clear it's one account that changed hands.
The more hands the collection account passes through, the longer the history a collection account will have. A long history is not an error or misleading to lenders experienced in reading credit reports.
Date of First Delinquency
The key date you should look for in a collection account is the date of first delinquency. The date of first delinquency is typically 30 days after the date of last payment.
The date of first delinquency sets the starting point for the 7-year clock in how long a collection account can appear on your credit report. This starting point is set by a federal law called the Fair Credit Reporting Act. Anyone reporting information to consumer credit reporting agencies — Equifax, Experian, and TransUnion — must convey accurate information or risk prosecution or cash penalties allowed under the FCRA.
Here, you mentioned the accurate date of last payment was sometime in 2007, which we means the date of first delinquency was either in 2007 or early 2008. Whoever reported the 2009 and 2010 dates would appear to have violated the FCRA.
What to do about the wrong dates? File separate disputes with each consumer credit reporting agency that is publishing the wrong date.
Before You Negotiate A Settlement With A Collection Agent
You mentioned the last payment was 7 years ago. Many state statutes of limitations are shorter than 7 years. If this debt is subject to a statute of limitations shorter than 7 years, then the collection agent cannot use your state’s courts to compel you to pay the debt. Let’s look closer at the statute of limitations issue.
Each state has its own statute of limitations for contracts. Take these four steps before you pay a collection agent:
- Validate the debt. As mentioned above, make sure you send the collection agent a written debt validation notice. A debt that cannot be validated cannot be collected. According to a recent FTC report, roughly half of all collection accounts cannot be validated. That means you have a 50-50 chance of knocking-out the collections on a debt immediately by taking the time to send a debt validation notice.
- Learn your state’s statute of limitations. If the clock for your state's statute of limitations for written contracts expired, then send the collection agent a cease communications notice. A collection agent violates the law if it files a lawsuit against you to collect on a debt where the statute of limitations clock has run out, though that doesn't apply to an original creditor.
- If the collection agent validates the debt, and the statute of limitations clock has not expired, then negotiate a settlement to the debt. A settlement can be for less than the amount the collection agent claims you owe.
- If you receive a notice of a lawsuit, consult with a lawyer to file an answer. Ignoring a lawsuit will not make it go away and will almost certainly make your situation worse.
Under the FDCPA, a collection agent may not add fees or interest to a collection account, unless the fees or interest are mentioned in the contract the consumer signed with the original creditor. Because most collection agents cannot produce a copy of the original contract the consumer signed, courts usually do not allow collection agents to add fees to their collection accounts. In other words, just because a collection agent adds mystery fees to your account doesn’t mean you must pay them.
Negotiating A Fair Settlement With A Collection Agent
One important point before we explain how to reach a settlement agreement with a collection agent: Reaching a deal with a collection agent will not remove the delinquency from your credit report, or improve your credit score a measurable amount.
If you’re not a born negotiator, read the Bills.com article negotiate debt settlements article to learn debt negotiation techniques. Here are three key facts to remember about debt negotiation:
- Original creditors will sell many, but not all, of their collection accounts to collection agents. In some cases, original creditors hire collection agents for a limited period of time on a contract basis to collect a debt. But, in most cases, collection agents buy debts for 3 to 8 cents on the dollar. Although collection agents have the right to collect the face value of the debt, use this information to your advantage when negotiating a settlement. Start your negotiations with a low figure.
- Most settlements average 40 to 60 cents on the dollar. However, if you can demonstrate a harsh hardship, smart collection agents will settle collection account for much less than 40 cents on the dollar.
- Some collection agents are quick to file lawsuits against consumers they, in their own estimation, believe can afford to pay a delinquent account. If you you receive a notice of a lawsuit, consult with a lawyer immediately.
Get your final agreement in writing. Read the Bills.com settlement letter article to learn the eight facts you need to see in a settlement letter. Some unscrupulous collection agents refuse to put a settlement agreement in writing, and then later claim the payment received was not a final conclusion to the debt. A written agreement protects both parties from a later misunderstanding.
Credit Report Account Conclusion
Be sure to validate a debt promptly and in writing when a collection agent contacts you in an attempt to collect a debt. When more than one collection agent tries to collect the same debt, a debt validation is the only way to make certain which collection agent has the right to collect an account.
You may have no legal obligation to pay an old debt. A debt that cannot be validated cannot be collected. Also, if the statute of limitations clock that applies to the account has run out, a collection agent violates federal law if it files a lawsuit against you in an attempt to collect the debt.
Follow the steps outlined on this this, and follow the hyperlinks mentioned, to learn how to validate debt, if the statute of limitations for the debt has expired, and if necessary how to negotiate a settlement to this debt.