While debt collectors and debt collection agencies may appear to have all of the power when it comes to your credit report, they are not above the law. The Fair Credit Reporting Act (FCRA) outlines a number of requirements by which debt collectors have to abide.
A debt collection agency furnishes information to consumer reporting agencies, and as such, is required to report information that’s both accurate and complete. In addition, debt collectors are required to investigate any disputed debts and correct any misinformation or substantiate why the item is on your credit report. Finally, a debt collection agency has to notify you within 30 days about any negative information it places in your credit report.
Nonetheless, many debt collection agencies play loose and fast with the law, and routinely employ tactics that can hurt your credit score. For example, they may try and reset the clock. Debt collectors face a statute of limitations when trying to collect on an old debt, although the number of years varies from state to state. Similarly, negative information on your credit report must be wiped out after seven years (except for things like bankruptcy and tax liens). A common debt collector tactic is to try and engage you and convince you to make a payment on the debt. Once you do, you’ve essentially reset the clock, the statute of limitations no longer applies, and the debt is yours to pay. This is why it’s very important to ensure that you ask the debt collector to validate the debt and ascertain that you legally owe the debt.
When you pay a debt that’s been in collection, your credit report should say so. Often, a debt collection agency will neglect to notify the consumer reporting agencies that a debt has been paid. This is against the law.
Sometimes, if you go through the process of negotiating a debt settlement, you can include a provision whereby the debt collection agency will report the debt as “paid in full” rather than “paid in settlement,” or remove the delinquency altogether. Whatever agreement you reach, make sure to get it in writing!
