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

Q&A: How to Fix Credit Before Refinancing Second Mortgage

Lee,
I have been reading and trying to learn for 2 years now. I am wondering if you can give some insight. 
I had to do something and the only thing I could do was default on all credit cards. 
Every card we had was defaulted while we did that, I have paid my mortgage,2nd mortgage and car payment with no late pays. 

My second is an interest only loan that is due in 2018. I have to refinance or will lose our home..do you think in this case trying a pfd or settlement would be my smartest option so o can try to rebuild before the 2018 date? My sol is 6 years..

--Anonymous


Anonymous,

First of all I want to applaud you for your efforts. You wouldn't believe the number of questions I get in the comments section of a post when the answers to the question are in the post. Now, on to refinancing that second mortgage of yours.

I don't know when you defaulted on your credit cards, but those defaults alone may not derail your efforts to get your second mortgage refinanced when 2018 rolls around. Defaulted credit cards and the collection accounts that result from them can only remain on your credit report for seven years and 180 days from the day you defaulted (Remember: the credit reporting period is the amount of time an entry can remain on your credit report. The statute of limitations is the amount of time a creditor has to sue you). I don't know when you stopped making payments, but its possible that all or most of the negative information will be gone by the time you refinance. 

Attempting to settle your debts isn't likely to do you any good. Sure, the collection agency (I'm assuming those debts are in collections by now) may agree to a settlement, but nothing you pay them now is going to improve your credit scores. The only thing that paying a collection agency will do is restart the statute of limitations for a lawsuit. You don't want that. You want to sit back and fly under the radar while your state's six-year SOL times out. 

A far better idea than paying the collection agencies to settle is to put that money away, wait for the statute of limitations to expire and pay a good attorney to help you isolate violations and get these negative accounts removed from your credit report. Nothing scares collection agencies quite as much as formal statements from an attorney--especially when the debt is time-barred and the collection agency no longer has any legal leverage. 

You can always attempt a pay-for-delete, but unless you have the full amount of the debt on hand it has the potential to backfire on you. Paying only part of the debt restarts the clock on the SOL and agreeing to pay in installments (they'll demand direct bank drafts) gives the collection agency access to your bank accounts. Believe me, you do not want that. Worse still is the fact that debt collectors have no qualms about suddenly "forgetting" that they agreed to delete their tradeline in exchange for payment. If you do have the cash on hand to successfully negotiate a pay-for-delete and the collector agrees, it is absolutely vital that you get the agreement in writing, on the collection agency's letterhead and signed by an actual person before making any payments. 

Even if you can't get all of the negative information removed by the time you have to refinance your second mortgage, any collections that remain will be old. The FICO scoring formula attaches greater importance to your most recent accounts. This means that old negatives don't hurt your credit scores nearly as much as newer negatives. 

Your goal here is to make sure you spent the time from now until you refinance your second mortgage doing everything within your power to accrue only positive credit information. Always pay your current creditors on time, keep low balances on any remaining credit cards or store cards, etc. If it were me, I'd purchase my credit scores once every six months just to see where they're headed. Do NOT buy your scores from the credit bureaus. They sell Vantagescores which don't mean anything. You want your FICO scores. You can purchase those directly from Fair Isaac at MyFICO.com. 

Getting your hands on another credit card may be difficult right now, but would be extremely helpful in the long run. The FICO scoring formula takes the types of credit you carry into consideration. Balancing out credit cards (revolving debt) with loans (installment debt) is crucial to earn the highest number of points. If you're married and the defaulted credit cards were in your name only (leaving your spouse's credit unmarred) I'd recommend asking her/him to apply for a new credit card and add you on as an authorized user. The account would then appear on your credit report and help you rebuild your credit scores before you attempt to refinance that second mortgage of yours.

In the long run, the main thing your lender is going to be worried about is whether or not your unpaid creditors have the right to sue you and attach a lien to the property you're refinancing. The expiration of the statute of limitations for these defaulted credit cards will work in your favor when refinancing your second mortgage.

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