Collection Accounts on Your Credit Report: The Ultimate Guide

August 31, 2019CreditBy toptierfinancial

Collections are one of the worst things to have on your credit report. They can damage your credit score significantly for a long time—up to seven years. This helpful guide explains what collections are, how they affect your credit, how collection agencies try to re-age debt, how to get collections removed from your credit report, and more.

What Is a Collection Account?

A collection account is a debt account that has been sold by the original creditor to a third-party debt collection agency. This happens you (the borrower) are delinquent on payments long enough (generally 180 days) for the lender to charge off the loan, which means they consider the account to be a loss—but that doesn’t mean you’re off the hook.

Once the account has been charged off, the original creditor closes your account and often transfers or sells it to a debt collection agency or a debt buyer. (Debt buyers typically focus on purchasing debt accounts and they hire debt collection companies to attempt to collect the debt.)

When Does the 7 Year Credit Rule Start on Your Credit Report?

Regardless of who the debt was transferred to or when it was transferred, the Fair Credit Reporting Act (FCRA) allows collections to legally be reported by the credit bureaus for up to seven years after the date of the first delinquency (also known as “DOFD” for “date of first delinquency”).

The seven-year rule for collections begins on the date of first delinquency.

What does this mean exactly? How do you figure out the date of the original delinquency of an account?

According to Experian, the date of the original delinquency is the first reported late payment. As an example, if you have a 30-day late reported and never catch up on payments, then the delinquency would later get reported as a 60-day late and eventually as a 90-day late.

The seven-year period after which the delinquency falls off begins with the first missed payment, the 30-day late. If the debt is sold to a collection agency, the original account and the collection account will both be removed from your credit report seven years after the initial delinquency, says Experian.

Medical collections are slightly different in that a 180-day grace period must be provided to allow insurance benefits to be applied. Therefore, the seven-year timeline starts after 180 days, not after a 30-day late.

The date that a collection account is charged off or transferred to another company does not change the DOFD and therefore should not change the date that the delinquency falls off of your credit report.

How Often Do Collection Agencies Report to Credit Bureaus?

Collections agencies can begin reporting to the credit bureaus as soon as they acquire your account. After that, they will typically report to the credit bureaus every month, like most other types of tradelines on your credit report. Therefore, if you have a collection account, you will most likely see the collection agency reporting every month.

Should You Pay the Debt Collector or the Original Creditor?

If you already have an account in collections, meaning the original creditor has already closed your account and transferred it to another owner, you should not pay the lender that the loan was originally from. The debt now belongs to someone else, so it would be pointless to pay the original creditor.

How Do Collections Affect Your Credit Score?

Having one or more collection accounts on your credit report can quickly lead to bad credit. A collection account on your credit report means you failed to make sufficient payments on a debt, which is a big red flag to lenders that you might default on a loan again. Therefore, your credit score will likely suffer a significant drop if you have an account go to collections.

Collections are major derogatories, so they can lead to bad credit. afeCredit.com, CC 2.0.

However, collections with low balances may not impact your score at all, depending on which credit scoring model is being used to calculate your score, such as VantageScore or a FICO credit score.

FICO scores 8 and 9 ignore both paid and unpaid collections that had an original balance of less than $100.

FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t count paid collection accounts against you and treat medical collections as less important than other types of collection accounts.

Unfortunately, with FICO 8 and previous versions of FICO, which most lenders today still use, all collections are highly damaging to your credit score, regardless of what type of account they are or whether the collections have been paid or not.

Does Paying Off Collections Improve Your Credit Score?

Unfortunately, paying off a collection won’t necessarily improve your credit score right away. Why?

As we said, with all FICO scores except FICO 9 (which is not widely used yet), both paid and unpaid collections are considered to be major derogatories on your credit report. Since a paid collection is still a major derogatory mark, paying off your collection likely won’t help your credit score if the scoring model used is FICO 8 or earlier.

On the other hand, since FICO 9, VantageScore 3.0, and VantageScore 4.0 ignore paid collection accounts, your score should rebound after paying off a collection with these credit scoring models.

Can a Collection Agency Change the Open Date of a Collection?

The open date of a collection is the date that the collection account was acquired by a debt collector. Every time the debt changes hands, the new collection account will thus have a new open date.

The open date does not affect how long the collection remains on your credit report because it’s the date of first delinquency (DOFD) that determines when the collection will be removed from your credit. While each debt collector will have a different open date, the DOFD cannot be changed unless it was reported incorrectly.

Can a Collection Agency Report an Old Debt as New?

You may have heard of another date pertaining to collection accounts: the “date of last activity” (DLA).

You might have heard it said that you should never make payments on a collection because that action would change the DLA on the account. If the DLA changes, so the advice goes, this “resets the clock” on the seven-year period after which the collection will fall off your credit.

In reality, debt collectors cannot change the DLA—only the credit bureaus can do that. Furthermore, the DLA does not affect the timeline of your collection account.

As we know, the seven-year period begins at the DOFD, not the DLA, and not the open date of the collection. The collection agencies are not legally allowed to change the DOFD, so there should be no legitimate way for them to “restart” the seven-year timeline. Yet there are many cases in which consumers report that their collection accounts are suddenly being updated as new accounts, even if they are several years old. What is going on in these situations?

This shady practice is the collection agency re-aging the debt.

It’s illegal to re-age a collection account by incorrectly changing the DOFD.

When a debt collector acquires an account, they sometimes improperly update the DOFD to be the same as the date opened. If you make a payment on the collection, they may replace the DOFD with the DLA, which is the date that you made the payment. This explains why the seven-year clock seems to restart in these situations.

But guess what? Re-aging a collection is illegal. Collection agencies cannot legally report an old debt as a new collection.

If a collection agency keeps updating your credit report with incorrect information and the date of first activity or the date opened on your credit report is wrong, you have the right to dispute that account and have it updated or removed from your credit report.

Double Jeopardy Credit Report

A “double jeopardy” credit report is when you have multiple collections for the same account on your credit report. This can happen when the debt is being reported by both the original creditor and the collection agency on your credit report or when the debt is sold to another collection agency.

Experian explains why there may legitimately be duplicate accounts on your credit report:

“When an account is charged off, or written off as a loss, it remains on your credit report for seven years from the original delinquency date leading up to the charge off.

Often, the original creditor will transfer or sell the account to a collection agency. In that case, the original account will be updated to show transferred/closed, and will no longer show a balance owed because the debt is now owed to the collection agency. However, your report will still show the history of the account, including the amount that was written off.

Since you now owe the collection agency, it will report the current balance owed.”

In this case, having multiple accounts for the same collection on your credit report is normal and should not change the impact the collection has on your credit score.

A true case of double jeopardy on your credit report involves duplicate collection accounts on your credit report being reported as open collections, which would be even more of a disaster for your credit than having a single open collection account.

Multiple Collection Agencies Same Debt

If your credit report looks as Experian describes, with the old collection accounts accurately reporting as closed, there may not be much you can do besides wait seven years for the collections to fall off your credit report.

However, if the original creditor and/or multiple collection agencies report the same debt as if they are all separate open collection accounts, that may be an error that you need to dispute with the credit bureaus.

How to Remove Collections From Credit Report

It may be possible to remove collections from your credit report depending on the situation.

How to Dispute a Collection on Your Credit Report

If a collection on your credit report is inaccurate or a duplicate collection account, you can dispute the collection account on your credit report. This doesn’t necessarily guarantee that the collection will be removed from your credit report, though, because the account could be updated with the correct information rather than removed.

The Federal Trade Commission provides a guide to disputing errors on credit reports as well as a sample FCRA dispute letter. Alternatively, some consumers may prefer to hire a credit repair service to assist with disputing inaccurate information.

How to Remove Paid Collection Accounts From Credit Report: Pay for Delete Collections

Even once you have paid a collection, you may find that it is difficult or impossible to remove it from your credit file. However, if you do want to try to remove zero balance collections from your credit report, one method that consumers use to do this is the “pay for delete” strategy.

You may be able to negotiate a “pay for delete” agreement with the debt collector.

With the pay for delete method, you negotiate with the debt collector to have them stop reporting the collection to the credit bureaus in exchange for your payment, whether you negotiate to pay the full amount owed or settle the debt for a lesser amount.

It may not be necessary to hire a pay for delete service, since you can look for a sample pay for delete letter online, although a credit repair service might be helpful in this situation as well.

Keep in mind that debt collectors are not obligated to accept the offer outlined in your deletion letter, so this strategy is not a guaranteed success.

If the collection agency does agree to delete the collection once you pay it off, it’s best to get verification of this agreement in writing before you make any payments.

Does Pay for Delete Increase Credit Score?

Remember that FICO 9, VantageScore 3.0, and VantageScore 4.0 don’t penalize paid collections, so it may not be a problem to have a paid collection on your credit report if your lender uses one of these credit scores. In this case, the deleted collection won’t increase your credit score.

However, with FICO 8 and earlier FICO scores, paid collections do hurt your credit, so a successful “pay for delete” arrangement could lead to a credit score increase after collection removal.

On the other hand, you may be shocked to learn that it is possible that deleting a collection could actually make your credit score go down. This is because there are certain scorecards or “buckets” within each credit scoring model that categorize consumers based on what is in their credit file and calculate their score differently depending on what bucket they are in.

As a hypothetical example, let’s say you have one collection on your file and you get that collection deleted. Perhaps you used to be in a scorecard of consumers with one or more major derogatories on file and after the deletion, you get reassigned to a different scorecard in which the consumers have no major derogatories. Since you are now in a higher bucket, your credit score would be calculated differently, and your score could actually decrease compared to what it was when you were in the lower bucket.

How to Remove Collections Without Paying

The only legitimate way to get an unpaid collection removed from your credit report is if the collection is more than seven years old or if it is being reported incorrectly.

If the collection is older than seven years, it should have been removed from your credit report already, so you can dispute that account with the credit bureaus to have it removed.

If the account is being reported inaccurately, such as if the date of first delinquency or the date opened on your credit report is wrong, you can also dispute the account and have it updated or removed as described above.

Conclusions on Collections

If you have a collection account on your credit file, you might end up with bad credit for a while, but it’s not the end of the world. Collections must be removed from your credit file after seven years whether they were paid or not, and the damage to your credit score will lessen as the collection ages.

Some credit scoring models don’t count paid collections against you, so you might see a credit score increase after paying off a collection. Alternatively, you could try to negotiate a pay for delete agreement with the debt collector.

If you have an old or inaccurate collection on your credit report, you can dispute this with the credit bureaus and have it corrected or removed.

Finally, the best thing to do to help your credit recover after a collection is to focus on building credit and maintaining a positive credit history going forward.

Credit Expert: Can Authorized User Tradelines Build Credit?

June 23, 2019CreditBy toptierfinancial

In 2009 the U.S. Congress passed, and President Obama signed into law, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. This law, which is more commonly referred to as the CARD Act, restricts credit card issuers from extending credit to consumers who are under 21 years of age, except under limited conditions. The impact of the CARD Act, among other things, has made it harder for young people to build credit reports and establish credit scores.

Some experts suggest getting a co-signer to build credit, but an authorized user account may be a better option.

This is just one example of the difficulties various segments of our population endure when they are trying to build or rebuild their credit reports. Certainly people over 21 who have experienced their own credit disasters have their own unique hurdles with which to deal when trying to build or rebuild their credit reports.

It’s not uncommon for financial experts to advise consumers to look for co-signers, open secured credit cards, or take out credit-builder loans as various strategies to build or rebuild their credit. All of these credit-building strategies have their own respective pros and cons. Some work better than others, some work faster than others, and some are just bad ideas.

The “Authorized User Strategy”

One common method for building credit reports and credit scores is to become an authorized user on a credit card account that belongs to another consumer. The way it works is fairly simple. The primary cardholder adds the new consumer’s personal information to their account and “authorizes” them to use the credit line. The newly added authorized user has the same permissions to use the card as the primary cardholder but has no liability for the debt. Think of it as a credit card but with training wheels.

Most credit card issuers will then report the history of the credit card account to the authorized user’s credit reports at Equifax, Experian, and TransUnion. The addition of the credit card helps to build or rebuild the credit reports of the authorized user.

The Impact of Authorized User Tradelines on Credit Scores

Credit scoring systems, such as those built by FICO and VantageScore Solutions, will consider the newly added credit card account the next time the authorized user’s score/s are calculated. And, if the credit card account has been managed properly, it can certainly help to improve the consumer’s scores almost immediately.

To the extent you are thinking of becoming an authorized user on the credit card of another person, you should first learn a little bit about the card and how it has been managed. You’re going to want to find out the age of the card, and the older it is the better it will be for your credit scores.

You’re going to want to find out the credit limit of the card and also its average monthly balance. This is important because credit scoring models will penalize you if the balance represents too much of the credit limit. This is formally referred to as the card’s “revolving utilization ratio” and it is calculated by dividing the card’s balance by the card’s limit, as they appear on your credit reports. The lower the ratio, the better for your scores.

And finally, it should go without saying that you’re going to want to ensure the card has always been paid on time and there is no record of late payments associated with the account. Late payments, of course, are not good for your credit scores.

In the perfect scenario, you’d like to become an authorized user on a card that is decades old, has a very high credit limit, a low balance, and has always been paid on time. This the optimal account to have on your credit reports and it is a fantastic way to build your credit reports and credit scores.

John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group and the author of four books about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has 27+ years of experience in the consumer credit industry, has served as a credit expert witness in more than 370 lawsuits, and has been qualified to testify in both Federal and State courts on the topic of consumer credit. John serves as a guest lecturer at The University of Georgia and Emory University’s School of Law.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of Tradeline Supply Company.

Piggybacking for Credit

May 9, 2019CreditBy toptierfinancial

What is credit piggybacking? If you’re not sure what this strange term could possibly mean, you’re definitely not alone.

Credit piggybacking, also referred to as credit card piggybacking or piggybacking credit, is a commonly used credit-building strategy. However, many people are still unaware of how to access this strategy and use it to their advantage.

In this article, we’ll define what piggybacking for credit means and how it can help your credit.

Credit Piggybacking Definition

The general definition of credit piggybacking is building credit by becoming associated with a credit account owned by someone else. There are three main ways in which credit piggybacking can take place, which we discuss in more detail in “The Fastest Ways to Build Credit”:

Opening an account with a cosigner or guarantor is one way to piggyback on someone’s good credit.

Opening an account with a cosigner or guarantor, which is someone who promises to be responsible for the debt if the primary borrower cannot repay it. If the cosigner or guarantor has good credit, the borrower may be able to qualify for credit that they could not qualify for on their own or qualify for better terms.
Opening a joint account with another person, which means both parties have full access to the account and are both held fully responsible for the account. By opening a joint account with a partner who has good credit, a person with less-than-ideal credit may be able to open an account that they wouldn’t have qualified for on their own or get more favorable terms.
Becoming an authorized user for the purpose of credit card piggybacking, meaning you are not responsible for the debt, but the entire history of that account may be reflected in your credit file, regardless of when you were added.

When people talk about piggybacking credit, they are usually referring to authorized user piggybacking.

How Does Authorized User Piggybacking Work?

Here’s how piggybacking works as an authorized user:

When you are added as an authorized user to someone’s credit card, often (depending on the bank), the full history of that account will then be shown in your credit report, regardless of when you were added to the card.
Therefore, piggybacking can almost instantly add years of perfect payment history to the authorized user’s credit file.
Authorized user tradelines can affect many important credit variables, such as your average age of accounts, age of oldest account, overall utilization ratio, number of accounts, mix of accounts, and more.
Historically, only the wealthy and privileged were able to use piggybacking as a credit-building strategy. Now, there is a marketplace where tradelines can be bought and sold, which is helping to democratize the credit system and provide equal credit opportunity.

Be sure to read our article to get all the details on how tradelines work.

The issue of piggybacking went all the way to Congress, which upheld consumers’ rights to use authorized user tradelines.

Is Piggybacking Credit Legal?

While Tradeline Supply Company, LLC does not provide legal advice, we can provide evidence that supports the idea that piggybacking credit is legal.

Firstly, piggybacking for credit is an extremely common practice that has been in use since the advent of credit cards. Studies estimate that 20-30% of Americans that have credit records have authorized user accounts in their credit file.

In addition, about 25% of people who have credit reports initially established their credit files by piggybacking in one way or another.

Many banks actually encourage consumers to add authorized users for the express purpose of boosting their credit scores.

You may have heard about FICO trying to take away authorized user privileges in 2008. But what you probably didn’t hear about was FICO backing down after a congressional hearing that involved the Federal Trade Commission and Federal Reserve Board.

During the hearing, FICO admitted that they could not legally discriminate between spousal AUs and other users, because this would unlawfully violate the Equal Credit Opportunity Act.

Since the U.S. Congress has upheld consumers’ rights to use authorized user tradelines, it seems reasonable to conclude that authorized user tradelines are legal.

For more information on this topic, check out our article, “Are Tradelines Legal?”

Does Piggybacking Credit Still Work?

As we discussed in “Do Tradelines Still Work in 2019?”, credit piggybacking still works, and we think it will be around for a long time.

Piggybacking credit is a well-established credit-building strategy that has been defended in Congress and promoted by banks. It is a significant part of our credit system.

Thanks to the Equal Opportunity Credit Act, authorized user tradelines are still a very important factor in credit scoring models.

Not only that, but even if FICO were to devise an algorithm intended to exclude piggybackers, it would be quite some time before lenders could implement it on a large scale. The slow-moving financial industry is still using FICO scores that were developed decades ago.

Piggybacking companies bring together buyers and sellers of authorized user tradelines.

What Do Piggybacking Companies Do?

Piggybacking companies, more commonly referred to as tradeline companies, simply facilitate the buying and selling of authorized user tradelines.

The tradeline companies act as an intermediary by marketing the tradelines, protecting the identities of the clients, and preventing fraud.

At Tradeline Supply Company, LLC, we provide an innovative platform through which users can buy and sell tradelines entirely online. We also provide educational resources so consumers can familiarize themselves with the credit system and how piggybacking works.

Can Piggybacking Hurt Credit?

If credit piggybacking is done incorrectly, it can backfire and hurt your credit.

Because the full history of the credit account is reflected in the credit file of the piggybacker, that means any negative factors will show up, too.

For example, if the account has any late or missed payments, that could hurt the authorized user rather than help. Similarly, high utilization on the account could also damage the authorized user’s credit.

That’s why we recommend going with a reputable piggybacking company who guarantees perfect payment history and low utilization (15% or lower) on all tradelines. This will virtually eliminate the risk of your credit being hurt by these factors.

The only other way piggybacking could hurt your credit is if you choose the wrong piggybacking credit card. It’s essential to choose the right tradelines for your credit file. To do this, you’ll need to figure out your average age of accounts and how adding a tradeline could affect this statistic.

For example, if your average age of accounts is 5 years and you decide to piggyback on a 2-year-old tradeline, this would bring down your average age of accounts, which isn’t a good thing.

For this reason, it’s important to use our tradeline calculator to see where you stand, and to check out our tradeline buyer’s guide before you choose a tradeline.

Let us know if this article helped you, and please share it with your friends!

Some Credit Information You May Not Know

April 17, 2019Credit, DebtBy toptierfinancial

Rights to Free Credit Reports

Under federal law, you’re entitled to a free credit report if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company that supplied the information about you. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud. Otherwise, a consumer reporting company may charge you up to $9.50 for additional copies of your report.

To buy a copy of your report, contact:

Equifax: 1-800-685-1111
Experian: 1-888-EXPERIAN (1-888-397-3742)
TransUnion: 1-800-916-8800

Under state law, consumers in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont already have free access to their credit reports.

If you ask, only the last four digits of your Social Security number will appear on your credit reports.

Establishing a Credit History

If you’re denied a loan or credit card because you have no credit history, consider establishing one. The best way is to apply for a small line of credit from your bank or a credit card from a local department store. Make sure you list your best financial references. Make payments regularly and make certain the creditor reports your credit history to a credit bureau.

If Your Spouse Dies

Under the ECOA, a creditor cannot automatically close or change the terms of a joint account solely because of the death of your spouse. A creditor may ask you to update your application or reapply. This can happen if the account was originally based on all or part of your spouse’s income and if the creditor has reason to believe your income alone cannot support the credit line.

After you submit a re-application, the creditor will determine whether to continue to extend you credit or change your credit limits. Your creditor must respond in writing within 30 days of receiving your application. During that time, you can continue to use your account with no new restrictions. If you’re application is rejected, you must be given specific reasons, or told of your right to get this information.

These protections also apply when you retire, reach age 62 or older, or change your name or marital status.

Kinds of Accounts
It’s important to know what kind of credit accounts you have, especially if your spouse dies. There are two types of accounts — individual and joint. You can permit authorized persons to use either type.

An individual account is opened in one person’s name and is based only on that person’s income and assets.

If you’re concerned about your credit status if your spouse should die, you may want to try to open one or more individual accounts in your name. That way, your credit status won’t be affected.

When you’re applying for individual credit, ask the creditor to consider the credit history of accounts reported in your spouse’s or former spouse’s name, as well as those reported in your name. The creditor must consider this information if you can prove it reflects positively and accurately on your ability to manage credit. For example, you may be able to show through canceled checks that you made payments on an account, even though it’s listed in your spouse’s name only.

A joint account is opened in two people’s names, often a husband and wife, and is based on the income and assets of both or either person. Both people are responsible for the debt.

Account “Users”

If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse’s name as well as in yours (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user.

If You’re Denied Credit

The ECOA does not guarantee you’ll get credit. But if you’re denied credit, you have the right to know why. There may be an error or the computer system may not have evaluated all relevant information. In that case, you can ask the creditor to reconsider your application.

If you believe you’ve been discriminated against, you may want to write to the federal agency that regulates that particular creditor. Your complaint letter should state the facts. Send it, along with copies (NOT originals) of supporting documents. You also may want to contact an attorney. You have the right to sue a creditor who violates the ECOA.

Collection Accounts on Your Credit Report: The Ultimate Guide

Credit Expert: Can Authorized User Tradelines Build Credit?

Piggybacking for Credit

Some Credit Information You May Not Know

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