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Better Business Bureau: Dealing with collection agencies

Bob Manista
Midland Reporter-Telegram 03/11/2005

Q: I've received a letter from a collection agency that says I owe money on an account I've never heard of. Am I obligated to pay the debt?

Maybe. It depends on several factors, mostly obviously if the debt is legitimate, how old the debt is, and under what circumstances the agent is trying to collect it.

Q: How can I find out if the debt is legitimate?

Collection agents are obligated to disclose the origin of whatever debt they are trying to collect if you ask in writing. Contact the firm by mail and request the information.

Q: What's the "statute of limitations" on a bad debt?

According to the Texas office of the Consumer Credit Commissioner, a debt can only be collected for four years after it was earned. After four years, the debt is considered uncollectable. That doesn't mean you're completely off the hook. The notation of the bad debt can appear on your credit report for as long as seven years if it was entered prior to the four year deadline.

Q: Can a collection agent threaten legal action if payment isn't made immediately?

They can threaten it, but it's highly unlikely that a court action will be successful (or profitable for the agent) if the debt is more than four years old. If less, the agent can make notations of non-payment on your credit record, and, if necessary, get a court judgment against you for the amount owed.

Q: A collection agent says I owe money on a cell phone bill that's three years old, but the company closed down and I've received no notice of the money I'm supposed to owe. How can they collect for a business that no longer exists?

It's fairly typical for the bad debts of one business to be purchased by another. That means that a third party has stepped in, offered some cash to a business that may be on its last leg, and bought the billing accounts from the company. The new owner of the debt then can hire a collection agent (or several of them, depending on the number of bad debts it owns) and the agents collect on the debt.

The agent usually keeps a set percentage of the amount of money collected and turns the money over to the company that owns the debt. Since that owner usually pays only pennies on the dollar for the worth of those bad accounts, they earn a fat profit for each debt that pays off. Whether or not the original company exists, the debt is valid and is often viewed as an asset of that business.

Q: Can a collection agent add interest charges to the original debt even if I've received no notice for years that I owe the money?

Yes. Whether or not you were aware that the legitimate debt existed, the money was owed, and it is seen as appropriate for the owner of the debt to collect interest.

Q: Okay, fine, I owe the debt. Does the collection agent have to be rude about it?

BBB files on collection agents are crammed with complaints that the agents are rude or otherwise unprofessional. There may be very nice, patient, kind, understanding agents out there, but the Bureau hasn't heard of them. On the other hand, it's not too hard to imagine how difficult a collection agent's job is - they're trying to talk hundreds or thousands of people out of money they may or may not know they owed.

People are naturally - and understandably - suspicious of the agent's contact, and probably don't react too well to be notified that they owe what might be a significant amount of money, and constantly being questioned about the legitimacy of claims may be hard on their nerves. Still, it's their job to justify the charges, and requesting the documentation in writing should be enough to settle things.

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Bob Manista is president of the Better Business Bureau serving the Permian Basin. The Bureau can be contacted at 563-1880 with questions or concerns about businesses or business opportunities.

Consumer Watch: Understanding Credit Reports

Candice Lee
News 12
May 23, 2005 - Getting yearly access to your credit report could acquaint you more with your credit score.

A survey of 1000 American's found that only one third correctly understands credit scoring, how its computed and what that three digit number says about your credit worthiness.

Realtor Charlotte Mabry knows a thing or two about selling homes in Chattanooga. A respected 20 year veteran of the real estate business, she knows a client's credit score can make or break a sale.

Charlotte Mabry, RE/MAX Properties: "It can make a difference not only as to whether you can get a mortgage, but also what interest rate you're given."

Whether you're in the market for a new home, new car or a boat, understanding how your credit score is computed can help you in the long run.

Credit or FICO scores provide the best guide to your future financial risk based solely on the information in your credit report.

Shawn Butler, Fair Issac Corporation: "The FICO score is the score that is used in the vast majority of credit decision, not only in the United States, but really in North America and around the world."

Shawn Butler of Fair Isaac Corporation, the creator of the credit score, tells News 12, lenders get FICO scores from the three major credit report agencies..Equifax, Experian and TRansUnion. And it doesn't take much to generate a good or bad score.

Shawn Butler: "Once an individual has as little as a single trade line, a Macy's Card for instance, a Visa or MasterCard, an auto loan that line only has to be at least six months worth of experience showing on that report when a score can be delivered."

What Elements help calculate your score?

Payment history accounts for 35 percent.

How long you've had credit counts for 15 percent.

How much you owe makes up 30 percent.

And types of credit and your requests for more credit make up 20 percent together.

Taking all these elements into account generates scores from 300 to 850. The higher your credit score, the more favorable lenders look at you when applying for a loan or credit card.

Shawn Butler: " 680 is kind of the mid line. If you're over 680 you tend to be treated with more preferential interest rates and things of that nature, below 680 people tend to want a higher down payment, or your interest rate may be up a few points."

Financial behavior that keeps your credit score in this range:

Pay your bills on time.

Keep your balances low on credit cards and other revolving credit.

Pay off debt instead of moving it around.

Keep your requests for new credit to a minimum.

And most importantly, never close paid off accounts. This reduces the amount of money available to you and therefore, contrary to popular belief, lowers your credit score.

Bottom line, Shawn advises everyone to take their credit history as seriously as their health.

So why is it important to keep your credit cards open?

Shawn explains it like this...

If you have 5 credit cards each with 2 thousand dollar limits and two are at the limit and three have zero balances, creditors see that you have 6 thousand dollars available for use. This makes your score go up.

Now if you close those three accounts...you have no money available and two credit cards maxed out, which makes your credit score drop.

Soon you'll be able to monitor the factors that affect your credit score without having to pay anything.

A recent amendment to the federal Fair Credit Reporting Act requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months.

The rules takes affect June 1st for Southern states, including Alabama, Georgia and Tennessee.

www.annualcreditreport.com

Call 1-877-322-8228

You can order your free annual credit report online at annual credit report dot com, by calling 877-322-8228, or by completing the Annual Credit Report Request Form.

When you order, you need to provide your name, address, Social Security number, and date of birth.

To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.

Knowing your credit score isn't the only reason why you should pull your credit report. Consumer credit experts tell us that it's the fastest way to spot identity theft.

Charles Hixson says evidence that someone has stolen your identity shows up on your credit report within hours.

Charles Hixson, Consumer Credit Bureau of Chattanooga: "It should come fairly quickly, within hours sometimes. It depends on what card they've used, what creditor they've gone to, used that card. If If its your bank account, you're not going to know about it until you in fact go into your bank account and find out or get your statement."

To help make sure you don't become a victim of identity theft, News 12, Sunny 92.3, Shred It and Hamilton Place will hold a Shred-A-Thon this Wednesday at Hamilton Place Mall.

Just bring us any mail, financial and other personal documents that you don't want to fall in the hands of identity thieves. We'll be in the Sears parking lot between noon and seven.