If you have not been reviewing and saving copies of your credit report each year do it this week. Save copies of your credit report by printing them out or saving an electronic copy. Why? The credit report is not a static document. It is a liquid document. It is only as good as the information currently reported, so things can change. Changing information is why you should save a copy every time you look at the report.
The information contained in a credit report is the information reported by the creditor. There is no formal verification process by the three credit bureaus (Experian, TransUnion, and Equifax). Which means it is up to the consumer to keep tabs for incorrect information and any changes that result in discrepancies.
The credit report is only as good as the information being reported at this moment. Saving your old credit reports will give you documentation for anything negative that has a limited time on your report. Negative information can’t stay forever, although there are exceptions for federally backed student loans. Tracking negative dates is critical because:
- It is tied to your recovery period. The more time that passes the less impact negative items have.
- If dates are changed, which happens often, you will be able to support your claim that something negative is being reported longer than the standard seven year period.
Think of it this way:
Most negative items come off the credit report entirely after seven years (one exception is Chapter 7 bankruptcy at 10 years) because of the Fair Credit Reporting Act.
Seven years breaks down to seven 12-month periods. Think of the first 12-month period as the worst for the credit. Once it passes we start to see more improvement. Generally after two to three years the credit scores are much less impacted by something negative, such as a collection. Each 12-month period that passes goes in the rearview mirror. The credit scores improve as time passes. Eventually the negative event is completely gone. Once finished, there is no trace or reference of the negative item on the credit report. This applies to any type of derogatory account falling under the seven year rule.
The problem is manipulation of the credit report by collectors:
- Changing original dates to keep debts on the credit report longer, whether intentional or not.
- Removing a collection and reporting it again at a later date.
The issue stems primarily from when a debt is transferred from one collector to another. If the original collector reported three years ago, transfers it to another collector today, under the law there are only four years left for that collection to report. However, it is common to see the new collector start the date fresh for seven years from when they report it. I have had clients and students tell me collection agencies told them the seven year rule starts over when a debt is transferred, which is completely false. I recall the words of a federal judge who responded to this premise by saying, “if all a creditor had to do is transfer a collection to get another seven years, bad debts would never come off of a credit report. That is not the legislative intent of the Fair Credit Reporting Act.” If a collector tells you the seven year clock starts over when the debt is transferred to them, be sure to file a complaint with the Consumer Financial Protection Bureau at www.consumerfinance.gov to get their opinion on that piece of misinformation.
The Federal Trade Commission (FTC) went after NCO Group for reporting collection accounts using later-than-actual delinquency dates. In changing the date of delinquency it could cause a debt to be reported beyond the seven year limit allowed. For example, if a collection was first reported delinquent in 12/08 and changed to 12/10 it would extend the reporting of the debt for another two years beyond what is legally allowed. To settle the charges NCO Group had to pay $1,500,000.
According to NCO Group it had obtained bad information about the age of the debts from a creditor. NCO Group is no small operation, it is one of the largest debt collectors out there, presumably with good systems, but mistakes do happen. What if it wasn’t a mistake, what if it was just an attempt to plague debtors longer in an attempt to negotiate a settlement of the defaulted amount? When situations such as this arise, it shows us why it is important to save paperwork and keep copies of your past credit reports. You may have to prove dates are being reported incorrectly at some point. With a copy of your credit report showing original dates you will be armed to defend yourself.
The bad debt market is huge, a 2013 report from the FTC cited face value debts in excess of $143 billion annually. Motive exists to change dates, and systems may not be fully employed to guard against the pursuit of time barred debt.
Any documentation you receive regarding debts should be saved, documentation is important. However, the first date a collection is reported on your credit report is the most important piece of information. Once it is reported the seven year clock begins, whether you pay the debt or not, at the seven year mark it is supposed to come off of your report under the Fair Credit Reporting Act.
The power of reporting is in the hands of the creditor. It is a smart move to be able to back up any future disputes you may have regarding dates with copies of credit.
Saving your credit report now could be a huge benefit later.
About the Author: Patrick Ritchie loves teaching about credit; he is the author of The Credit Road Trip and The Credit Road Map series of books. Check out his free online classes at www.CreditLiteracyProject.com.
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