How to Kick Debt Collectors off Credit Reports

Deborah is trying to clean up her credit so she can purchase a home. But it’s not proving easy. In particular, three collection accounts are causing major headaches. “One has listed a collections agency no longer in service, One collection agency will not return my calls. (left messages) and one has false info on it,” she writes on the Credit.com blog.

Dealing with collection accounts on your credit reports can sometimes be a long, frustrating process.

But relief is on the way — at least for some consumers. A recent agreement between 31 state attorneys general and the three major credit reporting agencies (CRAs) — Equifax, Experian and TransUnion — will change certain practices related to credit reporting. And when it does, there will be several important changes that may impact consumers who have debt in collections.

The End of Double Jeopardy?

If you don’t pay a collection account, it may wind up with a second — or third — collection agency, resulting in multiple negative items on your credit reports. Sometimes referred to as “double jeopardy,” two or three collection accounts for the same debt can affect your credit scores.

What will change: When collection agencies sell, transfer or no longer manage accounts they must update or delete the account. The agreement requires the CRAs to update their training materials for these companies that report, and make sure they know and follow this requirement.

Who Is That?

Sometimes consumers have found collection accounts listed on their reports but aren’t sure what they are for. Collectors are supposed to report the name of the original creditor but not all do.

What will change: Collection agencies are already supposed to provide the name of the original creditor and a “classification code” that indicates the type of debt (for example, credit card or medical). Under the agreement, the CRAs must make this information mandatory and can reject accounts that don’t meet the standards.

Note that you still won’t see the names of medical providers because doing so may compromise your right to medical privacy; for example, if your credit report showed the name of a substance abuse rehabilitation clinic or a cancer center. “Privacy is the issue here,” says Norm Magnuson vice president of public affairs for the Consumer Data Industry Association. “The collection account is codified so that others who receive the credit report can’t identify the medical facility. The consumer can get the medical facility’s name from the collection agency and/or the credit bureau if they want to validate the debt or don’t know for whom the collection agency is working the debt.”

But I Paid That!

We’ve received complaints from consumers who have paid off, or are making payments toward, collection accounts but their credit reports don’t reflect those payments. From the complaints we received about this issue, it doesn’t seem to be unusual for collectors to fail to update accounts when payments are being made.

What will change: Under the settlement, credit reporting agencies must require collection agencies that report data to “regularly reconcile” information about accounts that haven’t been paid in full. If they don’t? The agreement says, “This regular reconciliation will be accomplished, in part, by periodic removal or suppression of all collection accounts that have not been updated by the Collection Furnisher within the last six months.” In other words, if a consumer has been making payments but the collection agency fails to update the account for at least six months, the account will either have to be removed or “suppressed,” which means it won’t be shown to companies that order the report, and won’t be used to calculate a credit score.

It’s worth noting, though, that unlike other types of credit accounts, making regular payments on a collection account typically doesn’t help your credit scores. Under the most widely used credit scoring models, a collection account is considered negative, regardless of the size of the balance or payments that are being made. Still, there are some credit scoring models that ignore collection accounts where the balance is zero (VantageScore 3 and FICO 9) so it’s helpful to make sure the information that is reported is accurate.

I Had No Idea

A reader recently told us he was contacted by a collection agency out of the blue, trying to collect on a court citation. “I have never received a citation and have contacted the court since I was not the driver of vehicle and live out of state.” Whether is was a toll charged to you via your license plate number, or a parking ticket your son or daughter “forgot” to tell you about, tickets and other bills can sometimes wind up in collections without your knowledge. A survey by Credit.com found that one in 10 consumers who reviewed their credit reports said they found a collection account they weren’t aware of on their reports.

What will change: The agreement prohibits collection agencies from “reporting debt that did not arise from any contract or agreement to pay (including, but not limited to, certain fines, tickets, and other assessments).” Even better, this prohibition is retroactive: the CRAs are supposed to find a way to identify previously reported accounts of these types and remove them.

But…Hold Tight

Like any change of this scale, this won’t happen overnight. Magnuson says these initiatives must be implemented within 6 – 36 months from the effective date of May 20, 2015. In the meantime you still have the right under the federal Fair Credit Reporting Act to dispute information on your credit reports that you believe is incorrect or incomplete. That won’t change.

And neither will the need to review your credit reports and monitor your credit scores on a regular basis for changes. You can get your free annual credit reports from AnnualCreditReport.com, and you can get a free credit report summary including a score every month on Credit.com. After all, you can’t fix a problem you aren’t aware of in the first place.