Does Getting Your Car Impounded Hurt Your Credit Scores?

If you want to see unbridled fury, you need look no further than the guy who's just watched as a tow

truck loaded up his car and headed to the impound lot. If you aren't familiar with impound lots, they're nothing more than prison for cars. And this is not a figurative statement. I've seen impound lots that had the whole metal-bars-and-barbed-wire thing going on. I guess they're concerned that someone, furious as having his car impounded, might just try to break in and take it back. If that's your plan, I'm sorry to burst your bubble of bright, shining hope here but stealing your car back?  Not gonna happen. It's car prison, remember? You'll have to pay bail.

Why Cars Get Impounded

The average American hears "impounded car" and automatically thinks of drug dealers and the cars  they use to smuggle and market their wares. Using this logic, as long as you aren't the Godfather, a drug mule or anything in between, you should be safe from having your car impounded. Right?

WRONG.

"Oh, that could never happen to me!" you say, but reality just isn't that kind. Below are just a few reasons your car could get towed to the impound lot. Remember, this is just a generalized list. Impound laws and procedures vary by state.

• Road Rage (if you act on it in a dangerous or threatenng manner.)
• Driving without a license
• Driving 45 mph over the speed limit
• Having expired tags and registration
• Your car is evidence in a crime or contains evidence of a crime
• You abandon your vehicle

Can't Pay Impound Fees? Tough Luck

The impound lot may be prison for cars, but the daily impound fees are closer to that of a swanky hotel. Basically, it could cost you several hundred dollars to get your car out of impound. This is true even if your car was impounded from the side of the road after you ran out of gas and made a 10 minute ride up to the gas station with a friend to get some (happened to me).

Impound fees increase every day that you don't redeem the vehicle. When you simply can't afford to pay your impound fees, one of two things will happen.

1. Your lienholder will pay off your impound fees and repossess the car itself. This only occurs if you still owe money on the car and have stopped making car payments since the vehicle was impounded. The lienholder then sells the car at auction.

2. The impound lot sells the car at auction.

Collections After an Impound

The fees your car incurs while impounded are your legal responsibility--even if the circumstances surrounding the vehicle's seizure were blatantly unfair. After a period of time which varies by state, the impound lot sells the car and applies that balance to your outstanding impound fees and, of course, any liens your car carries. If your car sells for enough money to cover these debts, its time to drop to your knees and thank your lucky stars that someone up there likes you. You no longer have a car, true, but you don't have a missing car and a huge debt load hovering over your head.

If the impound fees exceed the amount your car sold for at auction, you could find yourself in some serious credit trouble. The impound lot will likely turn your debt over to a collection agency. The collection agency will then add it to your credit report. And that's whe the real horror show begins.

How an Impound Affects Your Credit Scores

Although everyone's mileage will vary, you can expect to lose 100 points or more after a collection account for impound debt gets slapped on your credit report. The FICO scoring formula is kept very hush hush, so you won't know exactly how much an impound will hurt your credit score until it shows up on your credit report.

Impound fees can hurt your credit scores.

As much as it pains you to hand over your hard-earned cash to the very people who you may feel stole your car, paying off the collection account now can help you in two very crucial ways:

1. You won't get sued. 

Getting sued sucks. The consequences of a lawsuit suck even more. The collection agency wlll likely add its own legal fees to your unpaid impound fees--spiking your debt to unreasonable proportions. They'll then collect it a number of ways:

• Garnishing your wages
• Levying your bank accounts
• Attaching liens to other property you own
• Seizing certain assets (Have another car? Not for long)

And in case I forgot to mention it, court judgments in the collector's favor will also show up on your credit report. A judgment hacks away at your credit rating like a bad executioner. Court judgments aren't bound by the standard seven-year reporting period. A judgment over unpaid impound fees will remain on your credit report for the length of time the creditor has to legally enforce it: ten years in most states.

2. The collection for your unpaid impound fees will begin to age.

The Fair Isaac Corporation (the company responsible for the FICO credit scores that lenders use) knows that the most recently reported information on your credit report is the most accurate indicator of the credit risk you pose to lenders. This is good news for those with bad debts that haven't been updated in years, because the older the account, the less it hurts your credit scores.

Paying your delinquent impound fees may make steam shoot from your ears, but it helps ensure that the collection account connected to the debt doesn't get regularly updated by the collection agency. Federal law requires that the collector update the debt as "paid" with the credit bureaus, but afterward it will just sit there until the credit reporting period (seven years) expires.

Note: Paying a collection does not result in the collection agency removing it from your credit report any sooner. It also doesn't improve your credit scores. Paid collections for impound debt--or any other type of debt for that matter--are just as detrimental to your credit rating as unpaid collections.

If you don't pay up, the collection agency may just decide to "refresh" your impound debt on a regular basis--ensuring that it does the most damage possible to your credit scores before you either pay it or the credit reporting period expires.

How An Impounded Car Affects Your Credit

An impound itself doesn't have a direct effect on your credit scores. It's the consequences of not paying off the impound that's a problem. Worse still, impound fees increase by the day. So if you don't have the money to bail your car out of impound by the end of the first week, the fees might climb beyond your ability to pay.

Generally, the better your credit scores are when a derogatory item hits your report, the more damage that entry will do. For a person with credit scores above 750, a collection account and civil judgment are the credit equivalent of a nuclear bomb. Be smart when it comes to your impounded car--even if that means swallowing your pride and paying a debt you believe you don't rightfully owe. If you don't, you could lose the car and your decent credit rating. That's not a fair trade for your pride.


Related Posts:

Can a Collection Agency Put a Lien on Your House or Car?

Can a Collection Agency Take My House?

Make Yourself Judgment Proof

Q&A: Collection Agency Keeps Updating Credit Report--Does This Hurt My Score Each Time?

Lee,

I have a creditor that keeps reporting a major derogatory to my credit report every week. Sometimes twice a week. Will this bring my score down every time they report it? Its a $180.00 balance.

--Anonymous 


Anonymous,

First, let me say that I'm surprised a collection agency is updating that frequently. I have some good news and some bad news. 

The good news is that you don't lose credit points every time the collection agency updates your credit report when updates occur that frequently. If the collection agency were updating your account every six months or even every year, your credit scores would probably drop somewhat each time, but very frequent updates, while detrimental to your credit scores, don't have the same immediately noticeable negative impact that more infrequent updates do. In the long run, however, the credit impact of both will likely be similar. Let me explain: 

One of the aspects of the mathematical formula that the Fair Isaac Corporation uses to calculate your credit score is the age of each account on your credit report. The exact formula is a trade secret, so there's really no way to estimate how much of an impact a collection agency's regular credit report updates will have. We do know, however, that the age of the accounts on your credit report accounts for roughly 10% of your credit score. 

If a collection agency merely adds its tradeline to your credit report and never bothers to update it (this is quite common) it has an immediate negative effect on your scores, but that effect lessens over time. Because the tradeline isn't updated, the scoring formula doesn't view it as being "fresh." Older entries that aren't updated affect your credit scores less and less as time goes by. 

When a collection agency regularly updates its tradeline, however, it ensures that the scoring formula continues to view the collection as a recent item. This, in turn, prevents your credit scores from gradually outpacing the collection account as it ages. An updated collection account carries the same negative weight the day its removed from your credit report as it did the day it was first inserted. 

Here's the good news. The fact that the collection agency keeps updating your credit report has no bearing whatsoever on the date the credit bureaus will remove the negative tradeline. The collection account should come off 7 years from the date the original debt fell 180-days delinquent (this is usually, but not always, the original creditor's charge-off date). If the debt is relatively recent, there's a good chance that these frequent credit report updates will slow down and eventually stop sometime in the future. 

Best of Luck,

Lee

Can My Credit Report Have More Than One Collection for the Same Debt?

Which collector should you pay?

Here's a horror story for you: You let a debt fall delinquent and the creditor sells it to a collection agency. Two years later you pull your credit report and discover not one, not two, but three collection accounts on your credit report for the same debt. Needless to say, your credit scores are in the toilet. This may sound farfetched, but multiple collections are a relatively common result of sheer carelessness.

Just as original creditors eventually sell unpaid debt to debt collectors, collection agencies also sell "uncollectable" debts to other debt collectors. The problem debtors often run into is this: debt collectors, like original creditors, often report their company's accounts to the credit bureaus. This results in a collection tradeline appearing on your credit report.

When the collection agency sells the debt, the new collection agency may also report the debt to the credit bureaus. If the previous debt collector doesn't bother to delete its tradeline from your credit report when it sells the account, your credit report will eventually contain several different collections for the same debt.

Multiple Credit Report Entries for the Same Debt Are Against the Law

It's perfectly normal to have two entries on your credit report for the same debt if those entries are the original creditor's account and the resulting collection account. Any further entries for the same debt are prohibited--even if each tradeline contains different account numbers (which they almost inevitably will). This isn't in the interest of protecting you, but rather in the interest of protecting future creditors.

Your credit scores are based on the most accurate portrayal possible of your past financial history. Multiple collections for the same account deal a devastating blow to your credit scores--making you appear to be a much higher lending risk than you actually are. By ensuring that multiple collection accounts can't appear on your credit report for the same debt, federal regulations protect lenders from making judgment errors that could ultimately affect their profit margins.

Prohibiting multiple collection accounts also protects the collection agency's interests. If you see a plethora of collection accounts on your credit report, you'll probably be confused about whom you should pay. This could lead to you paying off an account with a collection agency that no longer owns the debt. Unfortunately, that payment can "vanish" into thin air. The collection agency that actually owns the debt will continue to demand payment and the collector that actually received the payment may conveniently have no record of receiving it. This cheats both the debt's actual owner and the consumer.

How Long Can These Multiple Collections Stay on Your Credit Report?

Federal law restricts collections to only seven years on your credit report. This seven-year clock begins on the date the debt first falls 180 days' delinquent. This generally coincides with the date that the original creditor charges off the debt and sells it to a collection agency.

All the collection accounts that appear on your credit report for the same debt must fall off when the original creditor's tradeline falls off. This means that some collection accounts may only remain on

After 7 years, all collections must come off.

your credit report for a few years---if that. For example, if a debt collector reports a debt six months before the credit reporting period expires, its tradeline won't stick around for a full seven years. In order to comply with the Fair Credit Reporting Act, the company must delete the tradeline in six months.

Is There Any Way to Remove Multiple Collections for the Same Debt?

I plan on making a more in-depth post about this soon and providing a step-by-step guide to help you get rid of any clone collections. For now, however, just know that you aren't stuck with these tradelines forever. The Fair Credit Reporting Act, which governs credit reporting practices in the U.S., provides you with a dispute process.

You aren't limited to only disputing incorrect information. You can also dispute information that is obsolete, such as multiple collections or accounts that appear on your credit report for longer than the credit reporting period allows. You can dispute via mail, over the phone, or even online. Just be sure that you dispute multiple collections as multiples. If your dispute goes into the system as an accuracy complaint, the collection agencies in question are a lot more likely to validate the accounts and they won't get removed.

Long story short, you aren't alone. It's very common for consumers who've had financial difficulty and ended up with several delinquent debts to discover that their credit reports reflect more than one collection account for the same debt. As tempting as it may be to ignore the hassle, removing any additional collections will help you maintain the best credit scores possible until the credit reporting period expires.

Related Posts:

How Much Do Medical Collections Affect Your Credit Score?

Improving Credit Scores After Collections

Removing Re-Aged Collection Accounts From Your Credit Report

Can You Tell Debt Collectors That You're Dead?

Debtors have a myriad of ways to avoid paying collection agencies, but being dead has to be one of the most effective. Out of the myriad of ways debtors have to avoid having to pay debt collectors, being dead has to be one of the most effective. A debt collector could come knocking at the pearly gates, sure, but nobody would let him in.

He'd be directed to the other line...you know, the one peppered with lawyers, IRS agents and everyone who has ever worked at a DMV?

Yep. That line.

All kidding aside, if you're carrying a heavy debt load there are some definite benefits to being dead. Depending on your state of residence, death hinders the collection process considerably--making it an appealing excuse for frustrated debtors. Although the excitement is practically oozing out of your ears at the prospect of creating your own online tombstone, you should probably take the following into consideration before you break the news of your untimely demise to any debt collectors

Debt Collectors Probably Won't Believe You're Dead Without Proof

A seasoned debt collector has heard it all. Any excuse you can come up with, he or she has already fielded. The "death" defense isn't as brilliant or unique as it may seem in your head. But sometimes the story is true. After all, people die every day (40,000 if we're to believe Blue Oyster Cult). To weed out the fakers from the actual deceased, the collection agency will probably request a death certificate. And don't bet on them waiting a reasonable amount of time for the elusive death certificate to arrive. They'll likely just continue calling and asking for you--dead or undead. 

Note: Family members of actual deceased debtors are not required to send the collection agency a death certificate. Many just send a "my loved one passed away, do not contact us again" sort of letter which falls into the "Cease and Desist" category. So, theoretically, your failure to send the debt collector a death certificate isn't proof that you're actually still alive. 

Telling Collectors You're Dead May Constitute Fraud 

Nobody wakes up in the morning, stretches and then says, "Today I think I'll go commit some fraud so I can get me one of them swanky rooms at the County jail." Unfortunately, your seemingly innocent tactic for avoiding debt collectors could potentially land you in some serious legal trouble. 

Just to clarify, I'm not saying that telling a debt collector that you're dead is blatant fraud and will land you in jail. The chances of that are painfully slim. Debt collectors hear the "I'm dead" excuse more often that you think. Even if the collector, upon finding out that you are very much alive, calls the authorities and throws a Miss-Piggy-backstage calibur hissy fit, any evidence the collection agency has against you is circumstantial at best. But I have to make you aware that the possibility exists. It is possible that the debt collector can make a fraud claim and it is possible that the D.A. would move to prosecute. It is very unlikely, but it is possible. 

You're not truly tap-dancing with trouble unless you've created a forged death certificate to "prove" your alleged death to the collection agency. The irony here is that the consequences for the collection agency believing your story and writing you off as deceased are just as foul as the consequences you'd face in front of a judge. 

Bad Things Happen When the Credit Bureaus Think You're Dead

Once a creditor receives confirmation from your family members that you've died--usually via a death certificate--the creditor will notify the credit bureaus. The credit bureaus will then note that you are deceased. Once this occurs, you can't pull your credit and neither can lenders. All credit activity stops. I've never tried convincing the credit bureaus to bring one of my clients "back to life," but from what I've heard, reclaiming your credit when the credit bureaus think you're dead is a frustrating and nightmarish process. 

Stop Collection Calls Without Claiming to Be Dead 

No matter how simple the idea sounds in your mind, telling debt collectors that you're dead and convincing them of that fact takes some serious planning on your part. The end result? They start doggedly pursuing your next of kin (or in this case, they're doggedly pursuing you who have been, up to this point, pretending to be that next of kin). So the debt collectors are still calling and, since they've reported your death to the credit bureaus, your credit report is POOF! Gone. 

That's not the scenario you were hoping for, is it? Nope, didn't think so. If the collection calls are truly driving you insane, you can make them stop simply by sending the collection agency a cease and desist letter. (If the debt in question is still within the statute of limitations for debt collection lawsuits, make sure to only restrict debt collectors from calling you on the phone, not from contacting you in general. If you give a collector no way to contact you, its only option is to sue.) After receiving a Cease and Desist letter, federal law requires debt collectors to back off and let you rest...in peace. 

Related Posts:

The Partial Cease and Desist Letter

Collecting Debt From the Dead: Survivors' Rights Against Collectors

How to Stop Collection Calls at Work

How to Build Your Teen's Credit

Help your teen build credit

One of the smartest financial moves you can make is to help build your teen's credit. You're not only teaching your children good old fashioned responsibility, you're giving them a foundation they're going to need. Too many parents see no point in building credit for their children, but one day soon those kids are going to turn 18 and strike out on their own. Regardless of whether your teen heads to college or into the workforce, having a developed credit history gives him a significant advantage over other kids his age.

Why You Should Build Credit For Your Teens

Before I tell you how to build credit for your teen, I have to tell you why you should. You know, really sell you on the idea. If you're already in my camp and don't need to be preached at, feel free to skip to the next section.

Guess what happens when a child leaves home and finds himself out in the great big real world? He needs things. Sure, he may have a job, but his part-time college job or starting position in the company he hopes for a career in isn't going to pay him enough to get the things he needs. Take a car, for example. Let's say your child wants to buy a car. He needs to finance it and make payments. Without an established credit history guess who he's going to turn to to co-sign that loan? You. You love your child, you want to help but co-signing anything is accepting a risk that carries no rewards, you get me?

If you build your kid's credit ahead of time, he won't need to lean on you quite so much when he's finally out of his own. This doesn't just spare you the headache of having to worry that your much-loved offspring's inexperience will leave a few black marks on your credit before he finds his feet financially. It also gives him a sense of maturity and responsibility. He'll be proud of the fact that he can stand on his own--and you will too.

How to Build Your Teen's Credit Score

When you're building up bad credit, you have a variety of options. When you're building your teen's credit, you really have only one: a credit card. Wait. Stop. I can hear you saying to yourself, "But Lee, no credit card company is going to give a minor with no credit history a credit card." And you'd be right. But a credit card company isn't going to give your teenager his first credit-building card: you are.

Most credit card companies allow cardholders to add their children to their accounts as "authorized users."

Build your teen's credit with an authorized user card.

An authorized user isn't a full cardholder and can't make changes to the account like a joint cardholder can, but they do receive a card of their own connected to the primary cardholder's account. Most credit card companies also report the primary cardholder's account tradeline on the authorized user's credit report (Most, but not all--make sure your credit card company reports authorized users. If they don't, adding your child to your account is pointless).

This provides you with a golden opportunity to help your teen build credit. Provided your account is in good standing, your child will have a positive credit report as soon as the credit card company reports the new authorized user account to the credit bureaus.

Warning: Don't Accidentally Destroy Your Teen's Credit Scores

No one is perfect and circumstances can change. If you suddenly find yourself unable to make the payments on your credit card, you've got to contact the credit card company and remove your teen as an authorized user before you default. Missing a payment by a few days will leave you with a fee but no credit damage. Being 30, 60 or 90 days' late on your credit card payment is devastating for your credit scores. If your teen remains an authorized user on your credit card account when that occurs, his credit will suffer as a result of your financial mistakes.

If you decide to strategically default--that is, you make a conscious decision to stop paying your credit card debt rather than merely forgetting--you can and should remove your child as an authorized user first. The tradeline will still remain on your teen's credit report, but the credit card company will no longer update it. This protects your child from the negative consequences of your default while also allowing him to keep some credit history he can build on in the future.

One Tradeline and Your Teen Can Build His Own Credit From There

All you need to do to build your teen's credit is to give him one tradeline. A single authorized user account is enough to create a credit report and score for your child. The longer the account remains open and reporting, the more weight it carries (the age of an account factors into your credit score). Once your child turns 18 he can take the reins and the foundation you've given him and use it to build his credit score up even further. Here are just a few basic credit-building methods a person with limited credit can use to increase his tradelines and, ultimately, his credit scores.

• Student credit cards---These often have lower requirements than standard credit cards and can help your teen build more credit once he starts college. 
• Secured credit cards---Allows your teen to pay a deposit he can then borrow against to build credit. Make sure the credit card company reports accounts to the credit bureaus. Not all secured cards do. 
• Borrowing against his own money--If your teen has a savings account, his bank may agree to give him a small personal loan in the amount he already has in his account (or slightly less if you factor in interest). He can use his savings to repay the loan and build credit. 
• Finance a car--Just about anyone can get an auto loan these days, bad economy or not. Auto loans almost always appear on your credit report. Just make sure to shop around for a decent interest rate. 
• Store cards--Store cards often have less-stringent approval standards than regular unsecured credit cards yet still report payments to the credit bureaus.
• Get a job--Getting a job doesn't directly affect your teen's credit, but lenders are a lot less likely to work with individuals that don't have a steady income. A steady job, even a part-time job, makes your child a better candidate for credit cards and loans and, in turn, helps him build his credit. 

The right age to start building your kid's credit is up to you. Obviously a ten-year old doesn't need a credit report. And its up to you whether or not to actually give your child the authorized user card and let him use it. Although having his own card helps your child learn more about managing money, don't put yourself in a sticky financial situation in the hopes of teaching your children more about money and credit.. Whatever route you choose, give some serious thought to helping build your teen's credit--it could make a world of difference for him as an adult.

Related Posts:

Improving Credit Scores After Collections

Credit Card Authorized Users Hounded By Debt Collectors  

Can a Collection Agency Come After a Minor?

What Happens to Your Credit When You Go to Prison?

For most convicts, credit is a non-issue. They've got bigger things to worry about. Your credit scores, however, are a huge part of your day-to-day life whether you realize it or not. Credit scores, for example, determine whether or not you'll have to pay a hefty deposit to have utilities hooked up in a new home or get a cell phone contract. These and other mundane things are a crucial part of restarting your life after a prison stay. Your credit report and scores, however, can go through big changes as the result of a lockup. Just because you have decent credit now doesn't mean you still will after you're released. 

What Happens To Your Credit in Prison?

The standard credit reporting period--the amount of time an entry can appear on your credit report--is seven years for most debts (Chapter 7 bankruptcy, unpaid tax liens and civil judgments are an exception to this rule). Once the credit reporting period on an item expires, the credit bureaus automatically delete it from your credit report and it no longer factors into your credit scores. 

In the outside world, your credit is in a constant state of flux. Accounts drop off of your credit record while

Prison can erase your credit history.

new accounts are added.. The credit reporting period for your debts doesn't freeze just because you're incarcerated, but you are unable to open any new accounts. Over time, this can result in your credit history vanishing entirely--especially if you're sent up the river for a long stay. Numerous convicts have gotten released from prison only to discover that simple tasks like renting an apartment have become next to impossible. Landlords willing to take a chance on an ex-con with no credit are few and far between. 

Credit Score Changes as Items Age

The degree to which any entry on your credit report affects your scores depends on a variety of factors, but the amount of time that has passed since "last activity" on the debt plays a large role. While you're in prison, you aren't capable of managing your own debts and those accounts begin to age. The bad news is that positive accounts that you paid in a timely manner, such as a credit card that you paid on time every month and hopefully had the sense to close before you entered prison, will lose its ability to prop up your credit scores as the years go by. 

The good news is that negative entries, such as charged off credit cards and collection accounts also age. As their impact on your credit scores decrease, your credit scores could possibly improve while you're in prison. This is overwhelmingly uncommon, but it can happen. 

Leaving Prison With No Credit

When you get out of prison, the best way to check on your credit is to pull your annual free credit report. The only federally-approved site for free credit reports that doesn't require you to input a credit card number is AnnualCreditReport.com If the system cannot find your file, you'll know that your credit history has vanished during your imprisonment. You can pull all three of your credit reports once each year. Each credit report may contain different information, so its possible that at least one of the credit bureaus still has a credit report on file for you. Otherwise, you'll need to rebuild your credit from scratch after being released from prison. 

Q&A: Will Midland Credit Management Sue?

Hello Lee, 

I am unable to post to your blog for some reason, but I have been reading your blogs and you have some great information. I hope you are able to provide some insight on some of my questions regarding Midland Credit. 

My problem is that I have a super old account from Beneficial Household Finance from 2007. My DOFD was 5/2007 and at that point the debt was approximately $2800.00. In 2009, I understand that HSBC closed Beneficial Household. In May of 2010 Midland purchased the debt (or so that is the date that is stated on my credit reports that they purchased the debt). In December of 2010 they said I made a payment. And I kept racking my brain to try to figure out why I would have made any kind of payment to these scumbags. Perhaps I was just trying to do the right thing. So since I had paid off some accounts through a non-profit organization "Consumer Credit Counselors" I called and checked with them.... Sure enough they made a payment going to Midland for my Beneficial account in December of 2010. So now I have renewed the SOL and it will be on my credit report for 3 more years. Midland is now saying that I owe them $9700.00!!! How can they escalate to such an outrageous amount? And then just this year they started sending those ridiculous offer letters and calling twice a day on my phone, but I never answer them. Now it seems that they have recently stopped or slowed down. Is this a sign that they are getting ready to sue me?

This was an account that was a revolving type of account like a credit line, but it was not a credit card. I am in Nevada so does that mean that the SOL is 4 years (for an open ended account) or 6 years (because it was a contractual account).

So I will get to my questions based on the information above, and if you need more info from me in order to answer them, please let me know:

1) What do you think the likely-hood of Midland getting ready to sue me is?
2) Is it possible that they may give up and sell the debt? If so, what happens next?
3) They have the last recorded payment from CCCS as 12/2010, but how likely is it that they will have documented proof that it is for me and to be applied to this account?
4) Do you think the SOL for an account such as this would be 4 years or 6?
5) Since Beneficial closed in 2009 and Midland purchased the debt in mid-2010 how likely do you think it is that they have documentation of the debt?
6) Should I just continue to play Ostrich on this for now since they have been unsuccessful in contacting me?
7) Should I contact a consumer protection attorney and discuss the possibilities with them before I get served? 
8) Is there any way I can be proactive now (without making payment arrangements on a debt that is 3x the amount that I actually owe)?
9) How can a $2800 debt turn into 3x the amount originally owed?
10) What are my options to fight them and get this off my credit report?

Thanks for your input!


--Monique


Monique,

For starters, thanks for letting me know which state you're in. State laws often apply and you wouldn't believe the number of people who don't include their state in their question.

I get from the tone of your letter than your credit report and scores is the most important thing to you here and on that front I have some good news and some bad news. The good news is that the date Midland first purchased and reported your debt has no effect whatsoever on the debt's reporting period. The credit reporting period for most debts, including this one, is seven years from the date of first delinquency. That means that if you made your last payment to Beneficial Household Finance in May of 2007, the credit bureaus will remove the account records--including all collections associated with that particular debt--in November 2014. That means you've got six months to wait until federal law requires the credit bureaus to remove Beneficial Household's original charge-off and the Midland collection account that resulted from the charge-off. The payment your credit counseling agency made has no effect on this. It comes off in six months, paid or unpaid.

That being said, lets get to your questions. I'm doing them out of order so that I don't have to go back and rehash anything and this can be as simple as possible.

Do you think the SOL for an account such as this would be 4 years or 6?

Credit cards are generally considered open accounts as far as the statute of limitations is concerned. Sometimes debt collectors who want to sue will try to argue that the debt is, in fact, a written account since the SOL for written accounts tends to be longer. Your state's statutes pretty clearly define credit card debt as an open account. That means your statute of limitations on this debt is four years. This gives Midland seven months to sue you or hang up their hat.

You can find Nevada's stance on this here. Read NRS 97A.060 at the very top of the page.

How can a $2800 debt turn into 3x the amount originally owed?

The fine print of your original credit card agreement contained a clause stating that, by agreeing to the card, you were also agreeing to the accrual of interest that would continue even if you defaulted on the account. So even though the account is no longer open, credit card interest has been accumulating ever since 2007. That's why your debt is now so much higher than it was when you originally defaulted.

What do you think the likely-hood of Midland getting ready to sue me is?

That depends on a wide variety of factors. If they're serious about suing you, they'll likely start to investigate you. They need to know if you are employed or receive income they can't garnish (such as Social Security) and they'll want to know if you own property they can place a lien on or if you are just a renter. Any collection agency, to increase its chances of actually getting paid, is going to go after the people who are most likely to have the funds to actually pay the debt. You can't squeeze blood from a turnip, and if you don't have assets Midland can seize, you may not be worth the time and money it takes to drag you to court.

You are, however, dancing around the danger zone. Not only do you have a debt high enough to elicit a lawsuit, you're nearing the end of the statute of limitations in your state. Most collection agencies will throw everything they've got at you and use lawsuits as a last resort, since they're left holding the bag for the legal fees if they can't collect the judgment.

Keep in mind that Midland can sue after the statute of limitations expires. The case would get dismissed on the grounds of an expired SOL, but only if you bring the expired SOL to the court's attention. I don't know Midland's policies well enough to say whether or not they habitually file out-of-statute lawsuits.

Since Beneficial closed in 2009 and Midland purchased the debt in mid-2010 how likely do you think it is that they have documentation of the debt?

A record of the debt exists, otherwise you wouldn't have Midland on your back. But Midland will need more documentation than just its word to prove this case in a lawsuit (if you show up to defend yourself). If they sue you and you don't show up, they win by default without needing any proof. Most debt collection lawsuits end this way. If I were to guess, I'd have to say its highly unlikely that they have the kind of documentation to prove a case against you if you respond to a summons and demonstrate your intention to fight the lawsuit all the way down. Collection agencies buy debts in bulk and thus often have no records to support their claims--just a name and the amount the person supposedly owes.

They have the last recorded payment from CCCS as 12/2010, but how likely is it that they will have documented proof that it is for me and to be applied to this account?

The documented proof that the payment occurred is that the payment occurred. They should have no problem proving that via electronic records. As for whether or not the payment was sent from the credit counseling agency specifically for your account...that's trickier. It's an interesting claim to challenge because, if they can't prove it, that means the SOL has technically already expired. This is just my opinion, but this seems like a very weak defense because its relatively easy for them to request those records from the credit counseling agency that made the payment in the first place.

Should I contact a consumer protection attorney and discuss the possibilities with them before I get served? 

You're clearly worried about this otherwise you wouldn't have contacted me. The fact remains, however, that while you're well within your rights to consult an attorney, he/she isn't going to be able to save you from a danger that simply hasn't presented itself yet. I know its agonizing to wait and see what Midland does, but its a heck of a lot cheaper than hiring an attorney who's going to charge you a couple hundred dollars to tell you exactly what I'm telling you right now for free. Or worse--one who'll be shady enough to refer you to a bankruptcy attorney. If you opt for an attorney, be very, very careful taking that route. There's some thumping good lawyers out there who genuinely care about the little guy, but there's just as many who see you as just one more way to line their wallets. Do your homework on this one.

Should I just continue to play Ostrich on this for now since they have been unsuccessful in contacting me?

They haven't been unsuccessful in contacting you. By your own admission they are calling and sending letters to your home address. If it were me, I'd keep a record of this. Every call you get, write down. Every letter you get, save. This way, if they try to gutter sue you and get a default judgement using a fake or outdated address, you'll have proof to use in court to have the judgment vacated later on. So no, do not become an ostrich. Become a hawk. Watch and wait and pay attention. Because guess what? In your state, failure to properly serve a summons is grounds to vacate a judgement. That doesn't mean you shouldn't do your best to fly under the radar, if you catch my drift. Making contact with them now, right on the cusp of the expiration of the SOL, would probably be unwise...

 Is there any way I can be proactive now (without making payment arrangements on a debt that is 3x the amount that I actually owe)?

Not to my knowledge. The time for proactivity passed quite a while ago. At this point, even paying the original amount isn't going to clean up your credit. It won't even leave you with a "paid in full" mark on your credit report. If you paid the original amount now, the collection agency would likely just sell the remaining unpaid balance to another collection agency and this nightmare would begin anew. Your best way of being proactive is to know your rights and exercise them when and if it becomes necessary to do so.

What are my options to fight them and get this off my credit report?

Well, as we've seen, this thing should come off your credit report on its own fairly soon. If it doesn't, that means its been re-aged by Midland. That's when you can send a nice letter informing them that it is against the Fair Credit Reporting Act for them to continue reporting an account 7 years and 180 days beyond the date of your payment. Failure to adhere to those rules leaves them subject to a consumer lawsuit. Here, I'll even quote you the statute: You can find this under section 605 in the Fair Credit Reporting Act, page 22

Information excluded from consumer reports. Except as authorized under
subsection (b) of this section, no consumer reporting agency may make
any consumer report containing any of the following items of information...

Accounts placed for collection or charged to profit and loss which
antedate the report by more than seven years.

 I always recommend that people reach out to the collection agency for corrections first because, while you have every right to dispute the item as "obsolete" with the credit bureaus, you're once again in a situation where the collector has the ability to verify the lie and suddenly it becomes that much harder to dispute. Once they've "investigated" once, federal law doesn't require the credit bureaus to investigate a second time. If its any comfort, from what I know of Midland, they're pretty good about deleting their tradelines on time.

Now, this brings us back to that gargantuan debt they claim you owe. Midland, in my experience, will occasionally shelve debts rather than selling them to other debt buyers. In other words, once the SOL and reporting period have expired, the debts seem to disappear as well (that's weird for a collection agency, but I have seen Midland do this before, so you have to give them at least some credit for that)  But we have to face the facts, your debt is large and the odds are someone will have an interest in collecting it. If Midland passes the debt on to a junk debt buyer, it's very possible that this new collection agency will magically insert itself into your credit report. Be prepared for this and regularly monitor your credit from now on. You can get a free annual credit report from each credit bureau without a credit card by using the Federal Trade Commission's approved website for pulling free credit reports--AnnualCreditReport.com. Since you can get a report from each agency, I have always found it most prudent to pull one report every four months from a different agency. Unless, that is, you want to spring for a credit monitoring service.

One more thing, the expiration of either the credit reporting period or the statute of limitations is not going to cause Midland (or any other debt collector) for that matter, to simply give up on that debt. Once you're out of the woods on the lawsuit front, you may want to consider sending a cease and desist letter to put a stop to the incessant collection calls and letters once and for all. And for the love of all that is holy to you, keep a paper trail to back yourself up with the expired SOL/credit reporting period. This is incredibly important if a future collector ever decides they want to reinsert this nastiness into your credit record.

Occasionally I'll put links to other related articles that readers might find helpful at the bottom of certain posts, but the ones I'm including today are specifically related to you and your situation. This post has already become the longest Q &A I've ever done, and I don't want it to turn into a novel. Plus, there is a cheesesteak waiting for me in the kitchen and the very smell of it is fogging up my better judgment.

Best of Luck,
Lee

Related Posts:

Send a Cease and Desist Letter to Debt Collectors 

What Are Your Odds of Being Sued By a Collection Agency?

Dealing with Midland Credit Management

Removing Re-Aged Collection Accounts From Your Credit Report

How Do I Pull My Boyfriend's Credit Report?

Lee,

How do I pull my boyfriend's credit report? This is really important. 

--Jennifer S. 


Jennifer,

I hope what you mean to ask is, "How do I help my boyfriend pull his own credit report?" Because before we go any further with this I am obligated to tell you that pulling someone else's credit report without their

Credit stalking isn't love, its illegal.

knowledge and permission is credit stalking and it's against federal law. Even big companies can get into severe trouble for doing it. It simply isn't worth a federal crime to satisfy your curiosity. You need "permissible purpose" to access someone's credit information.

That being said, since you said "boyfriend" and not "ex-boyfriend," I am going to assume that you aren't a credit stalker but rather a conscientious girlfriend trying to help the man she loves verify that his credit is accurate before he tries to buy a car or get a new apartment. Unfortunately, you still can't do this alone. You can walk him through the process, but this is something he has to do for himself.

That being said, tell your boyfriend to go to AnnualCreditReport.com. Click the option to order his free

credit report and follow the online prompts for information. This is the only website that allows consumers to get truly free credit reports without having to provide a credit card number or join some kind of credit monitoring service (Translation: tell him not to bother trying to pull his credit reports from the credit bureaus).

He'll have to answer a series of prompts and multiple choice questions about different accounts he holds. This is the part that usually trips up anyone trying to do a bit of credit stalking on the down low. Once he's answered all the questions accurately, he can view and print his credit reports from all three credit bureaus.

Tell him his credit scores are not included in his free credit reports. If he wants his real FICO scores--the kind lenders use--he'll need to buy them from the Fair Isaac Corporation at MyFico.com.

And one more time, just in case anyone missed it, federal law prohibits credit stalking! No matter how curious you are, don't pull your boyfriend's or girlfriend's credit report unless you are merely helping them do it themselves!

Best of Luck,
Lee

Does My Credit Report Merge With My Husband's or Wife's When We Get Married?

No matter how grim the modern statistics for divorce happen to be, marriage remains a constant in just about everyone's lives. Statistically, by the time you're 55, you have a 95% chance of having been married at least once. Once you're married, keeping your financial life separate from that of your spouse is nearly impossible. There's a lot of folks out there ready to shout from the rooftops that your spouse's credit has no impact on your own, but that isn't entirely true.

Here's the facts: Your credit report absolutely will not merge with your husband's or wife's credit report after marriage. The credit bureaus have enough trouble maintaining accurate reports on individuals. Can you imagine the crapstorm that would ensue if they attempted to merge credit reports? And no, they won't merge your credit reports upon request either, so you can drop that fantasy notion that once you marry someone with excellent credit your poor credit rating will magically shoot up into the stratosphere.  Not gonna happen.

Stay together long enough and share enough joint debt, however, and your credit reports will begin to look frighteningly similar. It's not a true credit merger, but it serves the same purpose. Let me explain:

After marriage, most couples begin accumulating joint accounts. You'll  likely want a joint bank account so that you can both access your money. Most couples who buy a home do so with a joint mortgage to ensure that both parties have a legal claim to the property in the event of a divorce (just for reference, you can put your name on a home's title without your name being on the actual mortgage loan) You're also likely to acquire joint credit cards.

Unless you keep the accounts you held as a single person open, those accounts will gradually "time out" and fall off of your credit report. The credit entries that remain will be the joint accounts that you share with your spouse. The credit bureaus report joint debts to both your credit report and your spouse's. So, although you and your husband or wife's credit report won't merge in the true sense, you can expect your credit records to look extremely similar after several years of building a financial life together.

The gradual merging of credit information rather than the credit reports themselves can either help or hinder your scores. If you happen to marry someone with an abysmal sense of financial responsibility, you'd best be ready to take on the bulk of bill-paying yourself. A single missed payment can wreck serious havoc on you and your spouse's credit scores.

Related Articles:

Do I Owe My Husband's/Wife's Debts Aftter Marriage?

Community Property States and Defaulted Spousal Debt

Original Creditor or Collection Agency Forged Signature on Documents. Now What?

Hi Lee,

Your blog is wonderful, thank you. And, I REALLY need your advice.

I have a $3,100 bill from OC for a business debt that the company claims I signed a PG. I told them I didn't PG and it wasn't my responsibility. In 10/2012, they dinged my credit.

I'm currently refinancing a large jumbo loan and it appears the OC now either sold or hired a CA to collect. The CA has now dinged my credit, and the amounts are slightly different and it appears as 2 separate debts.

I spoke with CA and they provided me with the contract and I believe my signature was forged. 

However, because of the size of the loan and the dramatic payment reduction I will receive monthly, I simply need this taken off my credit immediately, and would be willing to pay for delete if I could get this removed. However, based on this blog I don't suspect this will be a possibility. In addition, if the CA agrees to PFD how can I get the OC to remove the entry?

Is there another option? Time is of the essence, so hiring an attorney and filing suit over $3,100 is not a good option either, IMO.

Please advise, thanks!

---Anonymous

Anonymous,

First of all, thank you for the compliment. If this blog has helped even one person, all the effort has been 100% worth it.

Now, for the meat and potatoes of the problem...even if the collection agency agreed to a pay for delete (and you never know, they might. $3100 is nothing to sneeze at), you couldn't get the original creditor to delete its entry. The pay-for-delete only works for the collection agency. The original creditor doesn't benefit and, as a result, its entry will still remain for the full reporting period. Unless, of course, you become a financial and/or publicity threat to the company. There are three ways I can think of to take care of this problem without following through with a lawsuit. Keep in mind, this is just what I would do if I were in your situation. This does not constitute legal advice.

Potential Solution #1

If you know for a fact that you didn't sign a personal guarantee and your signature was clearly forged, this is fraud. A handwriting expert would quickly be able to tell whether the signature was a forgery or whether you signed it and simply forgot (even when we sign things in a completely different way, there are still personal handwriting markers that remain). You and I both know that you don't have the time to deal with a messy lawsuit right now – but neither the original creditor nor the collection agency know that. And this is to your advantage.

If it were me, I'd hire a handwriting expert to analyze both my signature and the signature on the personal guarantee. If he/she finds that the signatures were made by two different people, ask the handwriting expert to put those findings in writing. If you're having trouble locating a handwriting expert, check with the closest university.

Now its time to take a trip to an attorney's office. Don't worry, you don't have to sue, you just have to put together an airtight and scary-as-hell threat. Explain what's going on to the attorney and ask to hire him/her to notify the collection agency and original creditor of the handwriting expert's findings and demand that they cease collection efforts immediately and remove all negative information connected to the fraudulent personal guarantee from your credit report. Provide the attorney with two copies of the handwriting expert's letter. Along with his own letter, he'll need to send a copy of the handwriting expert's findings. This demonstrates to the original creditor that you have proof against them. If you have proof and they have nothing but "But she/he signed it, your honor. Honest!" then you're more trouble than you're worth. They won't want that to go to trial.

It could be a problem if the OC is unorganized and careless. Then the threat may fall through simply because one hand doesn't know what the other is doing. That's always a possibility. You, however, will come at them with two things that give any company pause – legitimate proof of wrongdoing and an attorney. Nothing says "I mean business" like a lawyer touting proof of fraud.

You may run into an attorney who insists upon actually suing the company and who refuses to send his own demand letter coupled with the handwriting expert's findings because he claims it won't work. If this happens,  watch out! If you have a solid enough case that the attorney wants to take it to trial, then you very clearly have a solid enough case to attempt to resolve the issue outside of court. In this scenario, its very likely that the attorney knows a good case when he sees it and wants to convince you to sue because he'll make more money from a lawsuit than a letter. The good news is that, since attorneys who play in my field make so much less money than, say, a corporate attorney or defense attorney, they often legitimately want to help people. I'm just saying watch out for dishonesty in the legal profession. I guess that's akin to saying "Watch out for sharks in the ocean," huh?

Potential Solution #2

Although you have no desire to deal with a lawsuit right now, that doesn't change the fact that, with a forgery, you have every right in the world to file one. Solution #2 requires that you use your handwriting expert's analysis to file a lawsuit for fraud against the original creditor and/or collection agency. It's important not to focus solely on the original creditor just because they are the ones whose documentation reflected the forgery. If you request validation, the Fair Debt Collection Practices Act dictates that a debt collector cannot pursue further collection activity until it provides that validation. And guess what? It isn't unheard of for debt collectors to forge debtor's signatures on documents. The forgery could have been born anywhere.

Neither the original creditor nor the collection agency wants to go to court. They don't like going to court for frivolous lawsuits and they hate going to court to defend themselves against a claim as serious as fraud--especially when the plaintiff has an expert providing him/her with solid documentation that supports that claim.

It's very likely that both the original creditor and the collection agency would decide that removing that $3100 debt from your credit report is a lot cheaper and less time-consuming than bringing in an attorney and defending themselves against a claim of fraud. I've seen collectors back out of lawsuits that had a lot less merit and delete their credit report entries simply to spare themselves the time and money required to successfully defend against a lawsuit. You don't have to have an attorney to do this, but notification from an attorney packs a much scarier punch that a lawsuit you file on your own.

The only major issue that comes into play here other than time is money. Handwriting analysis isn't cheap and neither are lawyers--even if you only use them for a short period of time. Unfortunately, the cheapest way (filing this lawsuit yourself, going to court, requesting discovery documents, etc.) is the most time-consuming and you'll have to sacrifice money for time in order to get the credit problem taken care of so that you can refinance your home.

Potential Solution \#3

Report all of this to your attorney general and ask for help. Send a copy of the forged signature and your real signature. One well-placed call from the attorney general can usually make the bad guys go away--at least for a while. Also, file an online complaint with the FTC on both the original creditor and the collection agency. While the FTC won't settle your claim for you, they will investigate if they get enough similar complaints.

I understand your urgency to get this taken care of to ensure that you can refinance your home, but even if things go well there is no guarantee that this issue will be cleared up by closing. I would consider putting off refinancing until after you've cleared up this mess. Without the time constraint looming over you, you'll have time to aggressively pursue the lawsuit that you so desperately deserve to file. These people should not be allowed to get away with this.

Best of Luck,

Lee

How Landlords Pull Your Credit Reports and Scores

If you've ever rented an apartment, you know that that landlords pull your credit reports and scores before approving your application. Just like a bank or a credit card company, your landlord wants verification that you can be trusted to make payments on time. Not all landlords want the same information. Some will rent to you based on your credit scores alone without ever laying eyes on your credit report. Others aren't interested in your score, and merely want to review your credit reports to ensure that no previous landlord had to evict you in the past (yes, an eviction can show up on your credit report). But how, exactly, does a landlord pull your credit reports?

How Corporate Landlords Pull Credit Reports

Corporate landlords receive credit discounts.

You may be surprised to learn that a large number of apartment complexes in your area are owned by the same company. A large, sprawling metropolis of rental properties has greater need of a convenient way to pull applicants' credit reports. Think of it this way: if they're fielding a large number of rental applications per day, they need a fast, effective way of obtaining each applicant's credit history.

Large companies have the option of setting up a contract with the credit bureaus that allows the company to pull your credit reports directly from the source. Not all apartment complexes, however, even the truly massive ones, go this route. For a business, ordering credit reports directly from the credit bureaus is incredibly pricey – far beyond your measly $25 application fee. Corporate landlords can afford this because they receive volume discounts. The more credit reports they pull, the cheaper the cost per report.

How the Average Landlord Pulls Your Credit  Report

Some landlords pull credit through other companies.

The average apartment complex does not order enough credit reports on a regular basis to make ordering from the credit bureaus cost effective. These companies often opt to set up accounts with third-party credit providers. These third-party companies have the same deal with the credit bureaus that corporate landlords have, but because they pull a large volume of credit reports on a daily basis, their cost per report is low. By charging subscribing landlords a fee that is reasonable but exceeds the cost per report, the third-party provider makes a profit and the apartment complex gets a copy of your credit history much cheaper than it would have had it ordered the report directly from the credit bureaus.

How Private Landlords Pull Your Credit Report

The majority of rental homes are run by a property management company rather than the property owner.

Private landlords may not pull credit.

The property management company acts as the landlord; taking on the task of screening and selecting applicants, collecting the rent and scheduling the maintenance. Occasionally, however, you'll still find owners that choose to bypass property managers in lieu of handling landlord responsibilities themselves.

It isn't uncommon for a private landlord to avoid pulling your credit report and scores altogether. Even those who know how beneficial a credit history can be when making rental decisions often forego pulling the report for a variety of reasons such as:

• They don't know how
• The cost just isn't worth it. 
• They're afraid of violating privacy laws
• They don't know how to read and interpret a credit report

This makes the private landlord an ideal choice if you've had credit trouble in the past and might have trouble getting your application approved by a corporate landlord or property management company. 

Before you allow a landlord to pull your credit report, however, its important that you pull your own to find out where you stand in your hunt for rental housing. The federal government allows you three free credit reports each year: one from each credit bureau. Take advantage of that ability and avoid the nervousness of the approval process by pulling your own credit reports and scores before your landlord does.

Related Posts:

How to Get a Free Credit Report Without a Credit Card

Do Apartment Credit Checks Hurt Your Credit Score?

Improving Credit Scores After Collections

Will Making a Credit Card Payment a Few Days Late Hurt My Credit Score?

Paying late can bring your score down

Even if you're normally on the ball about sending in your credit card payments on time, an illness, financial difficulty or even trusting your scatterbrained partner to pay the bills could result in your credit card payment being a few days late. You already know that leaving your credit card balance unpaid for a month could leave you facing a 30-day late on your credit report. Unfortunately, sending in a late payment to your credit card company can put you at risk of credit damage regardless of how late your credit card payment actually is.

Credit Card Company Reporting Programs

Credit card companies maintain automated programs to report your payment history to the credit bureaus. These programs keep a log of your credit card balance, when you make payments and how much you pay each month. The credit card company doesn't automatically send new information to the credit bureaus every time you make a purchase or payment. The automated system uploads data at very specific times. The state of your account at the time of the update dictates the information that ultimately appears on your credit report.

Keep track of payment due dates

So lets say that your credit card company's automated reporting program updates its data to the credit bureaus on the 15th of each month, and your credit card payment is due on the 10th. If you pay the payment on the 12th, you're in the clear. If you wait until the 16th to make your payment, your account was technically "late" when the credit card company made its report, thus you end up with a 30-day late on your credit report.

For the sake of argument, lets say your roommate Joe's credit card payment is due at the first of the month and his credit card company also updates its data with the credit bureaus on the 15th. Joe pays his bill on the 14th (paying on the day the system updates is too big a gamble). Although Joe's payment was two weeks late and yours was only five days late, he's in the clear while you end up with a glaring black mark on your credit report and a tarnished credit score. It all depends on when the system updates.

Late Payments and Interest Rate Increases

Watch out for higher interest rates

Your credit score isn't the only thing you have to worry about when you send in a late payment to your credit card company. The CARD Act prevents credit card issuers from increasing the interest rate on your existing balance simply because you were a few days late with a payment (unless you were 60 days late, then all bets are off) but that doesn't mean that the credit card company can't increase your interest rate on new purchases while billing your existing balance under the original rate. Let me say that again: The CARD Act does not prevent credit card issuers from increasing interest rates on new purchases. Many consumers have the mistaken idea that the prohibition on interest rate hikes applies to all purchases. Wrong. Your credit card company can, and probably will, raise your interest rate when you're a few days late paying your credit card bill – but they have to give you 45 days' notice before doing so.

The good news here is that The CARD Act requires credit card companies to review any accounts that have incurred an interest rate hike after six months. If you're paid all of your payments on time and been an all-around exemplary customer, they have to restore your original interest rate within 45 days of the review.

Credit Card Late Payment Fees

If you pay your credit card bill late – even a single day late – you can expect your credit card company to slap you with a fee. The federal government caps these fees at no more than $25 ($35 if you've had a previous late payment in the past six months). If you carry a low balance and your minimum payment is lowers than $25, your credit card company cannot charge you a late fee that exceeds your minimum payment. In case you're wondering, this is why so many credit card issuers are raising consumers' minimum payments to $25 regardless of how low their balances are.

Ultimately, paying your credit card bill even a few days late is playing a game of Russian roulette with your credit. I don't normally advocate giving credit card companies access to your bank accounts, but if you can't seem to remember to pay your credit card payment on time, setting up an automated draft with your bank can help protect you from fees, interest rate increases and, most importantly, the credit damage you could potentially incur by paying your credit card bill several days late.

What Is a Key Derogatory on Your Credit Report?

Finding a key derogatory on your credit report is no walk in the park. Derogatory information lowers your credit score and makes you a greater risk for lenders. Negative entries generally fall under the heading of public records or collection accounts. Because not all negative reports fall under the category of key derogatories, there seems to be quite a bit of confusion regarding what a key derogatory actually is.

What is a Key Derogatory?

A key derogatory is typically any entry that is both negative and affects your credit scores. You're probably thinking, "But Lee, don't all negative entries affect my credit score?" Surprisingly no, they don't. Let me explain.

A key derogatory is nothing special.

The FICO scoring system is designed to help lenders make the most accurate lending decisions possible. Not all negative information makes you a greater risk for a lender. For example, if your credit report reflects a defaulted credit card debt of $1000, you're automatically a higher risk for any lender. After all, if you defaulted on that debt, you are more likely to default on another debt in the future. By contrast, an unpaid parking ticket for $40 has little – if any – bearing on your debt management skills. It's just as likely that you simply forgot to pay the ticket as it is that you intentionally refused to do so.

Fair Isaac updated its FICO system in 2009 (Yeah, its called FICO '08, but Fair Isaac was a year behind schedule in releasing the update) to better manage derogatory information. Derogatory credit entries for less than $100 have a reduced impact on your credit scores. In some cases (such as the parking ticket mentioned above) these derogatory entries do not impact your credit scores at all. By preventing small and relatively insignificant debts from dragging down your FICO scores, Fair Isaac helps prevent lenders from losing money by refusing to lend to an individual who would be likely to repay what they borrow – plus interest.

Key Derogatory From Experian

Unlike TransUnion and Equifax, Experian has a different method for determining which entries are and are not key derogatories. A negative entry must fall into one of several specific categories for Experian to mark the entry as a key derogatory. A key derogatory from Experian must be one of the following:

• A government debt, such as an unpaid student loan
• Term default (defaulting on the payment terms of a contract, such as mortgage default)
• Bankruptcy
• Settled debts (this includes short sales)
• Unpaid claims (collections, etc.)

This encompasses most, but not all, forms of derogatory entries that may appear on your credit report.

Derogatory and "Key Derogatory" are Synonymous

It is up to the individual credit bureau what does and does not constitute a key derogatory. The negative affect on your credit score is the same regardless of how the credit bureau chooses to label the entry. In this regard, a key derogatory is not any different from a standard negative trade line. Should you file a dispute, you can do so regardless of whether the entry is a key derogatory or a run-of-the-mill credit blemish.

The good news here is that you are the only one who can see what is and is not categorized as a key derogatory on your report. The credit reports that lenders pull are structured differently than consumer reports and do not separate negative entries into "derogatory" and "key derogatory" categories.