When Your Credit Score Assumes You're Guilty

Credit.com

A Credit.com reader recently shared his nightmare of a story with us in which a collection account for an unknown debt was placed on his credit report multiple times, creating a Whac-A-Mole situation by forcing him to dispute each item repeatedly while new collections for the same debt continued to pop up.  He wrote:

I have a debt collector harassing me with a debt, they say I owe, but have no knowledge of it. I have disputed this debt in writing (certified return receipt). It keeps turning over from company to company and I think I have 4 dispute letters out there so far with 4 separate entities. I dispute, I get a new demand letter from a different company…

Fortunately, after numerous attempts at disputing the debt through the credit bureaus, the creditor and collection agencies, our reader took the advice of Credit.com expert Gerri Detweiler and filed a police report for ID theft over the unknown debt in his name and included that report in a complaint to the Consumer Financial Protection Bureau and the creditor. The collections were soon removed from his credit report, and he even received an apology from the creditor!

Unfortunately, consumers experience the nightmare part of this story far more often than the happy ending, due in large part to our “guilty until proven innocent” system of removing erroneous collection debts from credit reports. If “nightmare” seems a bit extreme, consider that the appearance of a new collection item can lower a good credit score by more than 100 points — easily putting that consumer out of the running for a mortgage or credit card for the foreseeable future.

And what is required for the collection agency to place a bad debt on your credit report and destroy your credit? Basically, a name, an address and a debt. That’s about it. After that, the burden of proving the debt doesn’t belong to the consumer is on, you guessed it, the consumer.

Consumers receive some protection from the Fair Debt Collection Practices Act, which requires that a collection agency provide evidence of the debt and stop calling if requested by the consumer. However, this all takes place after the collection has been placed on the credit report, to be seen by any creditor accessing the consumer’s credit file, including existing creditors conducting a periodic “account review.”

The best way to battle against incorrect collections accounts is to pull copies of your credit report for free once annually from each of the three major credit bureaus at AnnualCreditReport.com. Also, you can monitor your credit monthly using the free Credit Report Card. Using this tool, you can spot a major drop in your score and then go through the steps of disputing erroneous information with the credit bureaus.

If you discover the information is correct, you can still work on your credit to insure that when the collection account is off your report, your credit rebounds.


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