5 Big Credit Score Killers & How You Can Avoid Them

It's not just bankruptcy, foreclosure or short sale you and your credit score have to worry about.

Bankruptcy. Foreclosure. Short sale. These are the items that probably jump to mind when you hear the words “credit score killers,” but there are plenty of other line items that can really tank your credit — particularly if your score was stellar at the time they hit your credit report. But knowledge is power — and many credit score crushers can be easily circumvented or ultimately addressed. (You can see where your credit currently stands by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

Here are five big credit score killers — and how to avoid them.

1. A First Missed Payment

Blame it on the fact that payment history is the most important factor of credit scores, but, yeah, the first time you go past due, expect your numbers to take a dive. Per a FICO study, a single 30-day late payment can cause a good credit score of 780 to fall 90 to 110 points. An average score of 680, meanwhile, can fall by 60 to 80 points. And that blemish will stay with you for awhile —seven years from when the delinquency occurred, in fact. (Here’s the full list of how long stuff stays on your credit report.)

The good news? If you course-correct, your score should steadily rebound the further you get away from that date. Plus, no guarantees, but there are things you can do to avoid winding up with a missed payment on your credit file in the first place.

How to Avoid a Missed Payment: Set up auto-pay from a linked checking account each month. If that move makes you wary, sign up for alerts that’ll let you know when your bill is about to come due — or whether you’ve just missed one. And, if you do mistakenly skip a due date, call your issuer to make it right. They may be willing to waive the late fee and not report the missed payment to the credit bureaus “just this one time,” especially if you’ve never missed one before.

2. An Error

Because they happen. And more often than you think. Per a 2012 report from the Federal Trade Commission, one in five Americans had an error on their credit reports. Some of these mistakes are innocuous enough — a misspelled name, for instance, won’t drop your score. But a bunch of missed payments that don’t belong to you certainly will, as would new credit accounts used (and abused) by an identity thief.

How to Avoid an Error: You can’t, unfortunately. But you can certainly stay on the lookout for them by regularly checking your credit. If you find an error, be sure to dispute it right away with the credit bureau(s). And, if you’ve got more than one mistake weighing you down, check out our guide to DIY credit repair.

3. A Collection Account

It seems like such a small thing — a $132 utility bill forgotten just after you graduated college. Or a $200 medical bill you thought your insurance had paid. Unfortunately, when it comes to credit scores, a single collection account can be no joke. You could see your score drop 50 to 100 points once one winds up on your credit report — and that account can legally stay there for seven years, plus 180 days from the date of your first missed bill, whether you go on to pay the collector or not. (We say legally because some collections agencies have recently announced changes that could help you get collection accounts off of your credit reports sooner than you think.)  

How to Avoid a Collection Account: This can be a bit tricky, we admit (medical bills, in particular), but you’ll want to keep an eye on your mail and resist the urge to ignore any calls from a debt collector. While there are plenty of scammers out there and mix-ups do occur, the debt could prove to be legit. Quick tip: Request written verification to confirm before agreeing or handing out any payments.

Beyond that, keep an eye on your credit reports so you can readily catch any collection accounts that may pop up. And, if you do owe the debt, consider squaring it away. Yes, they can both hang around your credit reports, but scoring models generally weigh paid collections as less than unpaid ones — and some newer models even ignore paid collections entirely.

4. A Maxed-Out Credit Card

Credit utilization is the second most important factor of credit scores, so bumping right up against your credit card’s limit can be problematic, particularly if that’s the only card you’ve got or, worse, you’re maxing out multiple credit cards. Remember, for best credit scoring results, it’s recommended you keep the amount of debt you owe collectively and on individual cards below at least 30% and ideally 10% of your credit limit(s).

How to Avoid a Maxed Out Credit Card: Monitor your credit card statements regularly, so you know exactly how much you’re charging. Consider paying your credit card bill more than once a month in an effort to preclude a big balance winding up on your credit report. Or aim to pay as much off as you can by your statement billing date, not due date, since that’s generally the balance issuers report to the credit bureaus each month.

And, depending on your situation, you could also consider asking for a higher credit limit (say you’re paying off all your bills in full and on time on a starter or secured credit card with a seriously low credit limit). Just note: The request could result in a credit pull, which could lead to a hard inquiry on your credit report, which could ding your credit score. But that small dip could ultimately be offset by the increased credit limit — so long as you don’t use it, of course.

5. A Tax Lien

No, Uncle Sam isn’t in the habit of reporting your full payment history to the credit bureaus. But leave that government debt unpaid long enough and you could wind up with a tax lien on your credit report, which will do big damage to your credit score. Generally, the Internal Revenue Service will file a tax lien automatically if you owe them $10,000 or more.

How to Avoid a Tax Lien: Be sure to pay Uncle Sam. But, more pointedly, if you’re saddled with a tax bill you can’t afford, contact the IRS to see if you can work out a payment plan. If a tax lien is filed against you and you later pay the balance due, take steps to have the lien withdrawn from your credit reports. You can do this by filing IRS Form 12277.

Image: swissmediavision

The post 5 Big Credit Score Killers & How You Can Avoid Them appeared first on Credit.com.

6 Big Mistakes People Make When Settling Debt

settling-debt

If you can’t pay back a debt you may be able to settle it for less than what is owed. The goal in doing so is pretty straight forward — you want to get the creditor to accept a lower payment amount than the current balance on the loan or account. However, getting there can prove to be a challenging task and there are some mistakes you’ll want to avoid when trying to settle a debt.

1. Having Unrealistic Expectations

You may have heard you can settle a debt for pennies on the dollar, in the 10-25% range. That may be idealistic, so you shouldn’t expect it to go that way.

“While you may be able to negotiate down your debt, it’s important to remember that lenders are typically for-profit businesses accountable to shareholders,” John Schneider of the Debt Free Guys, and Credit.com contributor, said.

2. Overlooking Tax Consequences

Any time a debt is forgiven or settled, the IRS treats the forgiven amount as taxable income, and the creditor will most likely issue you a 1099-C. If you don’t keep this in mind, you may be faced with a surprise when Tax Day comes along.

“You’re not done paying for your debt when you send your settlement check,” Schneider said. “However, the amount of tax you may owe on this income or settlement amount will depend on other assets you have.”

3. Negotiating Too Early

“It seems counter-intuitive, but the more you demonstrate your inability to pay your lender back, the more inclined your lender will be to negotiate,” Schneider said. “Missing a few payments wouldn’t qualify.”

Many credit card companies may not be willing to negotiate with you until you are at least 90 days delinquent. In addition, being premature in the process may refer to the fact that you don’t have a full grasp on your financial situation.

“The ‘too early’ would be that you should have a budget and [know] what is possible before negotiating,” Thomas Duffany, an Accredited Financial Counselor, said. (For more, you can read this guide on tips for negotiating with creditors.)

4. Not Getting Help Negotiating

The person you talk to on the other end of the line at the credit card company or the collections firm is a professional whose skills may be intimidating.

“The person who negotiates for the lender is an expert at negotiating,” Schneider said, so asking for help might be a good option. “If you need to bring in a friend or a colleague more skilled with negotiating to speak on your behalf it may be worth it.” There are also professional organizations that can help negotiate — if that’s the route you choose, consider reading this guide that goes over 14 questions you should be asking a debt settlement company.

“Navigating issues of debt can be stressful, confusing, and frustrating,” Rebecca Wiggins, executive director of the Association for Financial Counseling and Planning Education, said. “It is important that consumers know where to turn and who they can trust to guide them to financial security.” She recommended consumers “look for a trusted professional with reputable credentials and comprehensive training.”

5. Settling for an Amount You Cannot Afford

It’s no good negotiating a settlement if you wind up defaulting on the new agreement, essentially putting you back in the same stressful situation.

“It is essential that consumers have an updated spending plan to understand income, expenses and debt,” Wiggins said. “It will also help to determine how much they can afford to pay toward debt.”

6. Not Getting the Agreement in Writing

Getting a creditor or collection agency to agree to a settlement is only part of the process — once you get them to agree, it’s essential to get the agreement documented in writing. Oral contracts are extremely difficult to enforce, so having a written agreement spelling out the terms of the agreement exactly will help you should you need to enforce the contract in court.

According to Todd Christensen, the director of education at the National Financial Education Center in Boise, Idaho, said it’s important that “… anyone setting a debt should get in writing that the creditor will not sell (send to collections) any remaining amount not paid.” You’ll also want to outline the other terms of your agreement in writing.

As you continue to work on paying your debts, it’s a good idea to monitor the effects it’s having on your credit. You can view two of your credit scores for free, updated every 14 days, on Credit.com.

Image: Petar Chernaev

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Three Brain Surgeries Can’t Keep Cancer Patient From Son’s Birth

man-with-cancer-at-birth-of-son

Cagney Wenk and his fianceé, Jessica Li, recently welcomed their son, Levon Robbie Wenk, into the world. It wasn’t all joy for the new family, however. Cagney had been recently diagnosed with inoperable, stage 4 glioblastoma, an aggressive form of brain cancer.

Already hospitalized and with three surgeries already performed, Cagney was still determined to be at his son’s birth. His nurses helped make that not only possible, but even threw in something extra special.

So on Sept. 18, when Cagney made his way from the intensive care unit at Boulder Community Hospital to the delivery room — along with his nurse and all his medical equipment — a videographer also arrived to document the occasion. Cagney’s nurses contacted Now I Lay Me Down To Sleep ― an organization that provides remembrance photography to parents suffering the loss of a baby ― to take photos of Cagney, Jessica and Levon, according to the photographer and videographer, Sarah Boccolucci, who captured the moments.

Cagney’s tears of joy as he hears his son’s cries for the first time are incredibly moving (it’s only fair to warn you that the video below will likely move you to tears).

Because Cagney is no longer able to work, the family is struggling with hospital bills. They started a donation page on GiveForward.com in hopes of raising $50,000 to help them pay the bills and for daily necessities.

Americans Still Struggle With Medical Debt

Despite national health reform, healthcare costs continue to threaten financial stability for millions of American families. There are various consequences that result from unaffordable healthcare costs. Some people simply forego recommended medical treatment because they can’t afford it. This holds true for both insured and uninsured patients. But there are also financial consequences.

A Kaiser Family Foundation/New York Times survey earlier this year found that a majority (58%) of Americans with medical bill problems report they were contacted by a collection agency for unpaid medical bills. These collection accounts can seriously affect consumer credit scores. (You can see if a collection account is affecting your credit by getting your free annual credit reports at AnnualCreditReport.com or by reviewing two of your credit scores for free every 14 days on Credit.com.)

Of even greater concern are the strategies used by people to address their medical bills. Six in ten (59%) of those with medical bill problems used all or most of their savings trying to pay these bills, about one-third (34%) took on credit card debt to do so, and about a quarter (26%) withdrew funds from a retirement or college account in order to pay.

Image: Sarah Boccolucci Photography

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Help! A Payday Debt Collector Says I Owe them Money, But It’s Not On My Credit Report

payday-debt-collector

Yes, there’s such a thing as phantom debt collectors. And, yes, you can get contacted about a payday loan debt you simply don’t owe. Just ask intrepid consumer reporter Bob Sullivan, who received his very own debt collection note after simply reaching out to a payday loan company (and alleged phantom debt collector) for a story.

But if you have taken out a payday loan before and you’re genuinely confused about whether you completely addressed that debt, we have a bit of bad news: you can’t simply take the debt’s absence from your credit report as a sign you don’t have to pay.

For starters, payday lenders don’t typically report to major credit bureaus, like Experian, according to the bureau’s Director of Public Education, Rod Griffin.

In other words, there’s a chance the original loan never made it onto the traditional credit reports you can get for free each year via AnnualCreditReport.com. But that doesn’t mean you don’t owe the purported balance.

“Any debt you enter into contractually you are obligated to repay, even if it doesn’t appear in a credit report,” Griffin said, and ignoring a legitimate debt could have serious consequences.

“If you do not fulfill the terms of the contract, the payday lending company could send the unpaid amount to a collection agency, that could then report the debt to a credit reporting company,” he said. “Another possibility is that the payday lender could file a civil lawsuit to recover the debt. A judgment resulting from a civil lawsuit could also appear in a credit report.”

Something else to note: not all debt collectors report to the credit bureaus either. In fact, it’s not unheard of for some agencies to try to collect on the debt before taking that type of adverse action in an effort to get a debtor to pay. So, again, it’s totally possible for a legitimate debt collection account to simply not appear on your credit file as soon as you start getting calls.

So What’s a Confused Consumer to Do?

Whether you’re sure you owe or not, it’s important to ask whoever is contacting you for written verification of the debt they allege you owe. In fact, the Fair Debt Collection Practices Act (FDCPA) requires that collectors provide this notice listing the amount of money and the name of the original creditor within five days of contact. Tip-offs that you are dealing with a debt collection scammer include their refusal to provide this type or verification, threats of arrest and a request for payment via less traceable methods, like a wire transfer or prepaid card.

If you discover the debt is legitimate, it still pays to know your rights. Yes, collectors can try to get you to pay money you do owe, but there are restrictions on how they can go about this. For instance, they can’t call too early, too late, use abusive language or make dire threats. (You can learn more about your debt collection rights here.) You can always contact a consumer attorney if you think a debt collector may be stepping over the line.

Settling Debts

Remember, if you do, in fact, owe what they say, it may be a good idea to try to work out a payment plan before the collector pursues further action, like a lawsuit. 

Collection accounts that do appear on your credit report will affect your credit — and unpaid collections can do more damage than paid ones. (You can see how collection accounts may be affecting your credit by viewing your free credit scores, updated each month, on Credit.com.) Tips for negotiating with collectors or creditors include explaining clearly what you can afford, taking written notes whenever you talk to a collector and getting written confirmation once you agree to a plan.

If a collection account that you don’t owe makes its way onto your credit report, you can dispute its appearance with the major reporting agencies. (Here’s a guide on how to do so.)

Image: Jacob Ammentorp Lund

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Collection Fees on Student Loans You Never Knew Could Happen

Debt collections_lg

If you’ve ever been through federal student loan entrance counseling, then you know that failing to make payments on federal student loans can have serious consequences. If you fall behind on your required monthly payments after you graduate, the Department of Education may take steps like garnishing your wages before they ever reach your bank account, withholding your tax refund, or even suing you.

But did you know that failing to pay back your federal student loans could also make you liable for collection fees?

If you have federally-financed student loans that are in default—which in most cases means that you haven’t made payments for 270 days—the Federal government may refer your account to a collection agency. Collection agencies typically charge fees or commissions, and these fees can be added to the balance that you owe.

Though the fees vary depending on the agency and the type of loan you have, they can exceed 15% of your total balance, and can even reach up to 40% of your total balance in the case of Perkins loans. This means that if your current loan balance is $20,000, you could suddenly have between $3,000 and $8,000 in fees added to your account!

So how can I avoid having to deal with a collection agency?

Avoid default: The best way to avoid collection fees is to ensure that your student loan does not go into default. If you are struggling to make your monthly payments, contact the Department of Education right away to explain your situation and figure out a plan. For example, you may be able to reduce your required monthly payment amount through an income-driven repayment plan. You can find more information about how to apply for income-driven repayment here.

Check into deferment or forbearance: Depending on your situation, you may also be eligible for loan deferment or forbearance. You should look into applying for deferment or forbearance if you have returned to school, if you have an illness or financial hardship that affects your ability to make payments, or if you have recently served in the military. More information about loan deferment and forbearance is available here.

Heed warnings: If you do fail to make your required monthly payments, your loans will become delinquent and you will receive warnings from the Department of Education. Do not ignore these warnings. If you ignore them, your loans will go into default after 270 days and may be referred to a collection agency.

Monitor your credit: Additionally, if you have missed any payments on your student loans, be sure to check your credit score and get a credit report. If your credit score has been brought down by one or more missed payments, you can try writing a letter of goodwill to your loan servicer explaining your situation and politely requesting that they remove the missed payment from your credit report. You can find more information on how to write a letter of goodwill here.

But what if my loans have already been sent to a collection agency?

Take action immediately: If you receive a notice from a collection agency, this means your loans have gone into default. It is critical that you respond to the agency immediately to work out a plan for repayment. If you enter into a repayment agreement within 60 days, you will not be charged collection fees.

Try to pay back in full: If you are able to pay the full amount back, pay it immediately. This may not be an option for many people, but it is the fastest way to get your loans out of default.

Set up a rehabilitation plan: If you cannot pay the full amount, work with the collection agency to create a repayment plan—known in this case as a rehabilitation plan—that is manageable based on your current income. If the agency suggests a monthly payment amount that you feel is unmanageable, let them know that you need a lower amount, and send them documentation of your current income as proof.

Don’t miss a payment: Follow through on the rehabilitation plan! If you fail to make the payments you have agreed to, collection fees will be added to your account.

Ensure default status gets removed: After you have made nine on-time monthly payments according to the terms of your rehabilitation plan, your loan will be removed from default status. A loan can only be rehabilitated once.

Resources to help you

  • How to make a payment to a collection agency here.
  • 7 things to know if you have debt in collections here.
  • The Department of Education has a page about student loan default here.
  • The Department of Education’s page about getting out of student loan default is here.
  • The Department of Education provides contact information for the collection agencies it works with here.

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Pay for Delete Letters: Do They Work?

Businessman Holding Document At Desk

Are you looking to clean up your credit report? Have you recently discovered a delinquent account on your report that you were unaware of until now? Then you might be considering using a pay for delete letter to get this negative mark off your credit report.

There are a few important things you need to know about pay for delete letters – namely, what they are, how (and if) they work, whether or not they’re ethical, and what other credit restoring options are available to you.

What is a Pay for Delete Letter?

Say you have a delinquent account or two on your credit report, and these accounts are bringing your credit score down. You can send a pay for delete letter to the collection agency that purchased your debt. This letter requests that the account be deleted from your credit report upon being paid either in full, or for a settled amount.

It’s essentially as the name describes – debtors pay the collection agency to get the negative mark to disappear from their credit report. Once the mark is lifted, their credit score will likely rise.

Why is this a tactic some people choose to use? Even if you pay the balance in full, the negative mark still stays on your credit report until seven years from the date of delinquency have passed. Those who don’t wish to wait that long turn to pay for delete as a quicker solution.

Keep in mind that pay for delete letters generally have a much higher chance of success if you’re dealing with the collection agency – not the original creditor. So if your credit card with Chase is past due, and your balance has not been charged off yet, a pay for delete letter may not work. Generally, the lower the balance, the easier it might be to obtain a pay for delete. We offer a few alternative solutions below that might work as well.

Note that a pay for delete letter doesn’t delete your debt. You’re only asking for the account to be deleted from your credit report. Most people use pay for delete letters when they know they owe the debt, but due to unusual circumstances, were unable to pay at the time.

A good example of when to request a pay for delete is if you moved and you never received a bill due to changing addresses. You legitimately owed the balance, but you were never aware of it. This doesn’t exactly make you an irresponsible consumer, it just means there was an error along the way and an account ended up delinquent.

The same goes for owing medical debt when you thought your insurance was covering the bill because you never received a request for payment.

In both situations, you technically owe the money, but through no fault of your own, you were never notified of the debt, so you didn’t pay. Debt collectors are more likely to be understanding in such a situation. Just make sure to have proof (such as a change of address) that might help your case.

However, if your credit card balance was charged off and you simply never paid it because you didn’t have the means to, you may be less likely to get a pay for delete approved.

To see an actual example of an effective pay for delete letter, take a look at the myFICO forums. The Credit Karma forums have a slightly different example that may help you craft your own. Note that some pay for delete letters may outright deny the debt is yours; this is not something we recommend as you shouldn’t be lying to collection agencies if you truly owe the debt.

Can a Pay for Delete Letter Help You?

A pay for delete letter won’t necessarily hurt you, but it’s not guaranteed to help you, either.

That’s because collection agencies don’t have to respond to your letter if the debt is accurate. Furthermore, if you write a pay for delete letter and only obtain a verbal agreement from the collection agency, and you pay, they may not honor your request. The negative mark could remain on your credit report. Even worse, the debt could be sold again, and a new collection agency may ask you for payment.

Unless you get a response from the collection agency in writing, you’re out of luck if the agency doesn’t make good on removing the information from your credit report. They’re not obligated in any way to agree to a pay for delete.

Before you even write a pay for delete letter, send a debt validation letter to the collection agency to ensure the information it has on file is accurate. It may not legally be allowed to collect on the debt, so it’s important to start here before offering to pay, otherwise, you risk paying the wrong company.

If the debt is proven to be valid, and you agree that you owe the balance and want to pay it off to get it deleted from your report, you may actually have more luck calling than writing a letter.

Keep in mind that if it comes to that, you should never agree to pay anything over the phone. Always get things in writing when dealing with a debt collector. In most cases, offering to pay in full will typically result in a pay for delete agreement much more often than offering to pay less than the original amount owed.

Are Pay for Delete Letters Ethical?

Pay for delete letters have been labeled as a shady practice, and for good reason: it requires that collection agencies misrepresent the accuracy of their reporting to credit reporting agencies. That means collection agencies are in violation of the service agreement they have with credit reporting agencies if they accept a pay for delete.

Overall, pay for delete is detrimental to the fundamental purpose of the credit reporting system. If someone was unable to pay their balance and their account was sent to collections, paying after the fact and getting the account erased isn’t an accurate representation of his or her credit history. If a lender looks at said person’s credit report, it might deem him worthy to lend to when he’s been irresponsible with credit in the past.

To be clear, pay for delete letters are not illegal. However, remember that collection agencies aren’t required to acknowledge your request; they’re under no obligation to agree to a pay for delete.

Some will because they would rather get paid, and others might agree to settle on a lower amount because they don’t want the hassle. Don’t get your hopes up, though.

In general, we recommend being honest and not trying to game the system. Pay the debts you owe fair and square. If you find any information on your credit report that isn’t accurate, then use the steps outlined in this Credit Repair eBook to help you restore your credit to good standing.

Recommended Credit Boosting Alternatives

A goodwill letter is a good alternative to start with. It’s different from a pay for delete letter in that you’re admitting you were in the wrong, and are asking for forgiveness. A goodwill letter typically works well if you made a late payment, or if an honest mistake occurred and you’re trying to get it corrected. If you’ve had an account in collections for years, the chances of this alternative working aren’t as a great, but it doesn’t hurt to try.

If the collection agency is unwilling to do a pay for delete, they may be willing to settle for the amount owed. What this means is the negative mark will stay on your credit report (until seven years from the date of delinquency have passed), but it will show as “paid in full” or “settled,” depending on the arrangement agreed upon. This might not be as ideal as having the entire account knocked off your report, but it’s a minor improvement over having an unpaid debt on there.

Depending on the FICO scoring model being used, paid collections can improve your score and your chances of getting approved for a loan. FICO 9 won’t penalize you for paid collections accounts, but you will get dinged for unpaid collections (the exception is medical debt). FICO 8 doesn’t take unpaid collections under $100 into account.

Remember that information on your credit report will fall off after seven years. If you just found out about an unpaid debt because you checked your report, and the debt is several years old, you might be better off waiting it out as long as you’re not in the market for a loan anytime soon. The older a collection is, the less of an impact it has on your credit score, too.

Of course, you should also continue to do what you can to repair your credit. You might need to wait out the seven years it takes for black marks to fall off your credit report, but in the meantime, you should take action to maintain a good score for the future. Pay on time, don’t max out your credit lines, and borrow responsibly.

Conclusion

You can’t bribe your way to a perfect credit report. If the information on your credit report is accurate, then you should bear the consequences. Pay for delete letters aren’t guaranteed to work, and it can be difficult to try and get a collection agency to agree to it. Keep proving that you’re a responsible consumer using the methods outlined in this article, and hopefully your actions will show lenders that you’re a reformed consumer.

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Unpaid Debts: 6 Common Questions About Defaults, Statute of Limitations and Your Credit

Very Upset Woman Holding Her Many Credit Cards.

When you borrow money—whether it is to buy a car, refinance other debt, continue your education, purchase plane tickets, pay medical bills, or go shopping—you sign a contract that outlines the rules of how and when you’ll repay the money. But what happens when you miss a payment or can’t repay the loan?

1. What Happens When You’re Late on a Payment? 

If you miss a payment on your loan, the lender will likely contact you to ask you to make a payment, and it may charge you a late payment fee. Unless the lender gives you a grace period, the credit reporting agencies will also be notified that you were late with a payment, and this information will be added to your credit report. Usually, late payments are not reported to a credit reporting agency until you are at least 30 days past due. If you continue to not make payments, the lender may send your account to either an internal or third-party collections agency.

The collections agency will try to get you to make a payment, and it may take more severe measures. Missing payments on an auto loan can lead to the car being repossessed, along with additional fees and expenses. Defaulting on a mortgage can result in the lender foreclosing on the house, although this process can’t begin until the borrower is 120 days delinquent.

Unsecured debts don’t involve a physical object lenders can take away, but they do have the option of suing you. If they win a court judgment against you, they can collect the debt by garnishing—taking money out of—your paycheck or taking money directly from your bank accounts.

2. When Is the Date of First Default?

The day you miss a payment is the date of first delinquency, but the point at which your unpaid loan goes from delinquent to default depends on the contract and where you live. “Generally, after a missed payment there is a grace period, during which there may be fees,” says Lisa Stifler, a senior policy counsel at the Center for Responsible Lending. “Then it goes into default after some time.” For example, for credit cards the date of first default is usually 180 days after a missed payment.

[7 Things You Need to Know if You Have Debt in Collections]

3. How Does Missing Payments Affect Your Credit?

Missing loan payments can affect your credit multiple times over. Late payments are reported to the credit reporting agencies when you’re 30, 60, 90, 120, 150, and 180 days late. Some lenders may charge-off the loan at that point; writing it off their books because they assume you won’t repay it.

The charge-off is a new negative mark on your credit. When the debt is sent or sold to a collections agency, that’s another mark and a new collections account appears on your report. If you continue not to pay and the collections agency wins a judgment against you, yet another negative mark is created. All these negative marks can remain on your credit report and negatively affect your credit for years to come.

  • Late payments remain on your credit report for seven years from the date of first delinquency. If you bring the account current, the series of missed payments will be deleted seven years from the date of the first missed payment.
  • Collections remain for seven years from the date of first default with the original lender, which in total may be seven-and-a-half years after your first missed payments.
  • Judgments remain on your credit report for seven years from the ruling, which could be years after the late payment.
  • Repossessions and foreclosures, charge-offs, and settlements remain for seven years from the date of first default.
  • Chapter 7, 11 and 12 bankruptcies remain for ten years from the filing date. Chapter 13 bankruptcies remain for seven years from the filing date.

These negative marks remain on your credit regardless of whether or not you settle the account. The date of first default cannot be changed by you, a lender or a collections agency.

4. What Is the Statute of Limitations for Debt?

Those who are worried about getting sued for their unpaid debt may look to the statute of limitations (SOL) for relief. States impose a SOL that dictates how long a lender or collections agency has to sue the borrower for the debt. The SOL usually ranges from three to ten years and varies by state and the type of debt. Which state’s laws apply to your loan can depend on where you lived when you took out the loan, where you live now, or what’s in the contract.

It’s important to note that even after the statute of limitations has passed and the debt becomes time-barred, you still owe the money. The lender, or a collections agency, can try to collect the money from you directly, even if they can’t get a judgment against you. In some cases, you might still be sued for time-barred debt, and you could lose if you don’t show up in court to present the SOL as a defense.

[How to Make a Payment to a Collections Agency Without Getting Ripped Off]

5. Can You Reset the Statute of Limitations?

Those with an old debt are sometimes hesitant to make a payment or speak with a collections agency for fear of resetting the statute of limitations. In many states, the statute of limitations for some debts may reset if the borrower acknowledges the debt or makes a payment of any amount. This could be a reason not to engage with a debt collector.

On the other hand, it is a myth that speaking with a debt collector or making a payment resets the timer for the negative marks falling off your credit report. Those timelines have a particular start point and cannot be reset.

6. What Should You Do If You Can’t Make a Payment?

If you’re going to miss a payment, call the lender before you do so. Explain the situation and tell them when you can make a payment or how much you can afford to pay now. You can try to get late payment fees waived, although it’s a good idea not to make a habit of this.

When you can’t afford or choose not to make payments, the debt goes into default, followed by collections. Your options may change, but an open line of communication can still be critical. The collections agency may be willing to work out an alternative payment plan or settle the debt if you can pay a portion of the amount owed.

 

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What You Need to Know About Debt Collectors

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If you’ve ever had to deal with a debt collector before, the situation can feel quite intimidating. Not only are you feeling frustrated that you couldn’t pay your bill in the first place, but now there’s the small matter of whether this will completely ruin your credit score, and what the lasting repercussions will be.

Here are some of the basics it’ll be important to know if you’re dealing with a debt collector.

What is a debt collector?

A debt collector by definition is someone whose job is to collect debts owed. Debt collectors can come in the form of agencies, lawyers and companies that buy delinquent debts and then attempt to collect on them.

What should my first step be if a debt collector contacts me?

The first and most important thing to do will be to make sure that you are actually the offender. If you can’t recall being late or missing a payment for the company that is alleging you owe money, you should ask for proof that the debt is yours. You should also check your credit reports and credit card statements for any potential instances of fraud or identity theft.

What types of debts might I be contacted about?

A debt collector may contact you regarding personal debts like family or household debts, as well as personal credit card accounts, auto loans, medical bills or even your mortgage.

What are my rights when it comes to debt collectors? 

By law, debt collectors are not allowed to reach out to you before 8 in the morning or after 9 at night, unless you’ve previously agreed to it. They also cannot contact you at work if they’ve been told you can’t get calls there. They can, however, reach out to you by phone, letter, email or texts, as long as they don’t pretend to be someone else (like a lawyer, for example), and they don’t harass or threaten you.

Can a debt collector get into my bank account?

The answer to this depends largely on which state you live in, although for most states, the same rules apply. In these states, creditors must obtain a court order in order to get into your bank account, which means they must first sue you over the debt and win. In other words, there is no way for a debt collector to get access to your bank accounts without you first knowing — the process would require proper notice of a lawsuit and hearing dates and times first. You can find out more about the process right here.

Will my credit be affected?

Unfortunately the answer here is that yes, your credit score can be negatively affected by a collection agency, and the higher your score, the more points you may drop. If your score is 770, for example, it could drop between 40 and 70 points from a single collection item. The item will also stay on your report for approximately seven years, whether you pay the collection item back or not.

For more information about dealing with debt collectors, check out this piece about seven things you need to know if you have debt in collections.

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Can a Debt Collector Get Into My Bank Account?

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Can a creditor get into your bank account if you don’t pay your debts? The short answer is: maybe.

Whether and to what extent a creditor can get into your bank account depends on your specific circumstances.

It’s important to note that the exact answer for you will depend on the state law in which you live. For that reason, it may be valuable to seek an attorney’s advice in your state.

But for a lot of people, in many states, the following rules typically apply.

How A Creditor Gets Access to Your Bank Account

To get into your bank account, the creditor must get a court order. Specifically, this means that the creditor must sue you (take you to court) and win. Only after the judge enters a judgment against you (meaning the creditor won the lawsuit against you) can the creditor have access to your bank account.

This is an important point to remember. You don’t have to live in fear that a creditor could be in your bank account at any given time until the creditor gets a judgment in its favor. Part of this process requires that you would be given notice of the lawsuit and hearing dates and times. So, you should know when you’re being sued, and you shouldn’t have to worry about a creditor having access to your bank account until that time comes.

One caveat to this general rule is that there could be a situation where a creditor does not need to get a judgment against you in order to access your bank account. One example of this is the federal government. If you have federal loans, the federal government does not need to get a judgment against you to access your bank account as a creditor. The government could also use wage garnishment, tax refund interception and Social Security garnishment to get repaid. There may be other rare exceptions for you, which is why it’s important to seek an attorney’s advice.

Another exception to this rule is if the place where you owe money to is the same financial institution where you hold your money. For example, if you bank at Chase Bank and also have a loan from Chase Bank, the bank may be able to access your funds to repay this loan (this would be included in the paperwork you signed allowing this to take place).

[7 Things to Know if You Have Debt in Collections]

Giving a Creditor Your Bank Account Information

If a creditor has access to your bank account, you can be pretty confident that the creditor is going to collect what it’s owed. This means that you should never give a creditor your bank account information. Most debt collectors will ask you to pay this way, and you should not do it. Allowing the creditor to debit your account is essentially permission to continue to do it. Even if the creditor is only supposed to take less than the full amount you owe from the account, it could take more. And if the creditor takes more money from the account than you give it permission to, you are going to have to prove that. Getting your funds back and taking a creditor to court can be avoided if you do not give the creditor your account information.

[How to Make a Payment to a Collections Agency Without Getting Ripped Off]

For example, if the creditor says that you can pay half of what you owe, and to do so, you need to give the creditor your bank account information, I urge you not to do this. In every situation that I have encountered, it is never a good idea to give the creditor your bank account information.

The general consensus is that you should not give your bank account information to a creditor. If the creditor insists that this is the only way for it to take payment from you, then you should open a second account specifically to pay this debt. Only fund the account with money that you want the creditor to have. This way, the creditor cannot access your full bank account.

How Much Money Can a Creditor Take From Your Account?

There are consumer protection laws in place to prevent a creditor from taking too much money out of your account. But again, these are state laws that vary depending on where you live.

Typically, the laws that limit a creditor’s ability to garnish your bank account require you as the debtor to do something. You are responsible for figuring out what the law is in your state and taking action to limit the amount that a creditor garnishes from your account.

A creditor can also garnish your wages, up to 25% of your paycheck. This is garnishment from your paycheck. If the funds are actually deposited into your bank account, the 25% doesn’t hold true.

If you are in this situation, you should consult an attorney to see what state laws are in place where you live.

How to Get Help

If you are concerned about a creditor seizing money from your bank account, a good place to start is to contact a local attorney to find out what state laws specifically apply to you.

Avoid giving a creditor your bank account information. In general, it’s not a good idea. And remember that typically, a creditor needs to get a judgment against you before it can access your bank account.

An excellent resource to help you with your creditor problems is the Consumer Financial Protection Bureau. This is a federal agency that aims to protect consumers, specifically with financial protection.

The post Can a Debt Collector Get Into My Bank Account? appeared first on MagnifyMoney.