Credit Score Boost for You?
If your credit report includes debts in collections, you may have just gotten a break.
Thirty-one state attorneys general recently reached an agreement with the major credit reporting bureaus (Experian, TransUnion, Equifax) that will soon change credit reporting of debts in collections. As a result, you could see a cleaner report, which will translate to a higher credit score.
How is Reporting of Debts in Collections Changing?
The agreement makes these changes to credit reporting:
No contract or ‘agreement to pay,’ no reporting
If there’s no contract or ‘agreement to pay’ to back up a debt you owe that has gone to collections, that debt cannot appear on your credit report. (You may still owe the debt—that’s a separate question.) And this part of the agreement is retroactive. It applies to items that may have been on your credit report for months or years.
Your payments toward a debt in collections must be reported
Have you been making payments toward a debt that’s in collections? If so, the reporting agency must, under this new agreement, “regularly reconcile” data about accounts that haven’t been paid in full. Specifically, if the holder of the debt doesn’t update the info on your credit report about the debt to reflect your payments, then the reporting agency must remove or suppress (effectively hide) the collection account from your credit report. After removal or suppression, your credit score wouldn’t reflect the item.
Original creditor’s name must be included
The agreement requires that the original creditor’s name—not just the collection agency’s name—be reported for any debt in collections. A code indicating the type of debt (credit card, medical, etc.) must also be reported. This will help you recall the source of the debt when you’re reviewing your credit report.
The end of multiple reporting of the same debt
It’s common for a single debt to be sold, perhaps several times, by one collection agency to another. If each agency that owned the debt continues reporting it, then the same debt could appear on a consumer’s credit report multiple times, with each appearance dinging his or her credit score. Collection agencies are required to update or delete from their credit reporting debts they no longer own, and under the agreement reporting agencies are to make sure collection agencies know and follow this requirement.
When Do These Credit Reporting Changes Go Into Effect?
The agreement’s pieces will be rolled out over the next 6-36 months. In the meantime, you can and should continue aggressively to complain about any inaccuracies or deficiencies on your credit report through the usual Federal Trade Commission process. It’s easy to do yourself!