If you’ve been following my blogs, then you’re in agreement that the more recent the derogatory the more damaging impact it has on the credit score. Also we talked about what accounts can help the credit score when settling and which accounts can damage the credit score if settled We have covered how collection agencies manipulate dates in order to cause the most damage on your credit score. It’s imperative to learn how to properly age these accounts when identify violations, settling accounts or targeting problem areas when trying to reestablish. A single derogatory entry can have many different dates represented in its reporting and depending on the type of derogatory, will determine key dates. There is much confusion and contradicting information floating around on this exact subject. This blog will be my effort to unravel the web of confusion on this subject and help educate you on a very important piece of this puzzle. On Part 1 of this blog we will focus on aging collections.
If the age of the debt is the biggest impactor of the credit score, then how do we properly age the debt? In order to properly age the derogatory, you need to first know the difference between a Collection Agencies and Original creditors. The impacting dates on these accounts are totally different from each other. On this blog let’s start with collection agencies and how to properly age and recognize how the collection agencies seem to refresh these accounts.
Collection agencies. Are a third party entity, collecting on behalf of the original creditor, or they purchased the debt and now own it. The FCRA regulates collection agencies that are collecting on behalf of on how they can report. If the original creditor does not report to the credit bureau, then the contracted collection agency can in lieu of. But if the original creditor is reporting the debt then the collection agency cannot, otherwise it would seem as if the debt was being reported twice. (Btw: a common violation.) If the collection agency owns the debt then the original creditor can still be on the credit file but with the debt marked sold and a 0 balance. The collection agency can then report the debt showing an outstanding balance.
In order to properly age an account, or recognize violations, it’s important to be able to recognize each date and what it means and how it affects the credit score. Important dates to recognize are the open dates, Date of last activity, and Date of last delinquency. We will focus on these three, since they will have the most effect on the credit score.
Open date: This is the date the collection agency has taken on the debt. The open date is the most score damaging date when aging a collection. This one detail creates a mountain of confusion with many people concerned thinking that the seven years starts from this date, or the statutes of limitation commonly mistaken for re aging the debt. It does not, however it does refresh the account and the way the credit score calculates the debt as if it were newer. Absolutely causing more damage to the credit score. Remember, the newer the derogatory the more damage it causes. I know that you will read and hear information that will contradict what I’m telling you. Please know, that just because it does not technically re age the debt the credit score still calculates the debt as if it’s newer.
Collection agencies seem to know this loop hole and every day sale debts to each other passing these old debts around creating brand new open dates each time the new collection agency buys the debt, keeping the consumer from being able to make progress from the storms of his past. It’s common that many collection agencies are affiliated with each other and my guess probably same ownership. A great strategy to pass debts around keeping and refreshing the open date and of course if a class action laws suit or a load of fines from the Attorney General they can simply bankrupt that entity and roll it all over to the next. Although manipulative and unethical it’s legal. It’s like hitting the refresh button on an old debt.
Date of last activity (DLA): Reporting the last activity on an account. Usually representing the last time a payment has been made on the outstanding debt. But now has a broader meaning, it could simply be a conversation with the creditor deemed as activity. The DOL. can and does make a big damaging impact on the credit score.
Date of last- delinquency: This is the last time the debt went delinquent. This is the date that the account would age from if accurate. This date is often abused and its biggest violators will tend to roll each month, representing the debt as if they were an original creditor with a payment plan showing the client as if they were currently late. Common practice and this absolutely keeps the older debt fresh with how the score reads the debt. It actually tricks the score into reading the debt as if it were an original creditor. Each month updating the debt as a current delinquency. Again making the debt seem newer. Common violators are Midland Funding and LVNV and Portfolio.
So what do you do? When you can’t seem to put the past behind you. When you’re trying to reestablish your credit worthiness. In spite of on time payments, and optimizing your utilization, the debt keeps coming back to haunt you. It’s like that stain in the carpet. You think you have it out, a couple of weeks later it comes back up. Eventually you give up trying to remove it.
Pay them off? Not a good idea. In most cases when paying off a collection the it simply updates the debts DLA (date of last activity) and the credit score does not calculate the balance or the words Paid. Therefore continuing to calculate off the indicator code representing it as a collection but now with a newer date of last activity DOL which is the date it was paid off, and in turn making the activity newer and lowering the credit score.
Use these violations as leverage to get the derogatory deleted. We will talk more about details of the methods we use to remove these accounts from disputing, a proper debt validation, MOVs and age verifications. In the meantime stop the collection agencies from reselling the debt.
Stop the reselling of the collection and the re aging of the open date. By recognizing and responding to the new collection agencies’ dunning notice. The law mandates that before a collection agency can begin collection activity including reporting the credit bureau, that they must notify the debtor by letter to the last known address. If the debtor does not respond the collection agency can start collection after the 30 days. Where most collection letters are all different shapes, sizes and colors, one thing is always the same and that’s the federally mandated dunning notice. See the example below. If that paragraph is on the collection letter this is more than likely a new collection agency picking up the debt, whether the debt is new or not respond to it within the 30days! Ask them to validate the debt by requesting a list of items in regards to the debt. Not only will this most likely kill their efforts to collect the debt, but legally that new collection agency cannot sell the debt if they did not validate it. Obviously they still do, but at least you’ll have records to fall back on if they do. See the example below.
The design of the credit score was to assess and calculate the risk factor of a consumer’s credit. Obviously much weight was put on the date of these accounts, factoring in hard times and consumers history after. There is nothing accurate about the scoring system if the information that its reading is manipulated and inaccurate. I see it every day, people back on their feet, loan worthy, and low risk tax paying consumers stuck in this cycle of refreshed debt.
This is a big part of what we do at Credit Firm Inc. for our clients, we recognize the all too often violations and demand that the debts are reported correctly and consequently get them removed. We also educate are clients on recognizing the dunning notices and getting them to us to respond to in their behalf, we do so indefinitely. I tell em all the time. If its 3 years down the road and you receive a dunning notice, get it to us. Well take care of it.
Part 2 of this blog, I’ll talk in detail how to properly age an original creditor, the damaging dates factors and the many violations and when and what accounts to consider settling.