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Credit where credit's due -- but only if you're lucky

by Peter Andrew

When, some time ago, John Watts of Birmingham, Ala. took his young child to hospital for the last in a week-long series of MRI scans, he believed he was up to date with his deductibles. Certainly, nobody mentioned anything about a payment being due when he checked his offspring in, and he never received an invoice. Nevertheless, it turned out he was wrong; he actually owed about $200.

But the first he knew of his liability was when, a few weeks after that last hospital visit, a debt-collection agency got in touch, demanding payment. He called the agency on the day he received its letter to query the claim. Then he called the hospital, and it was only during that conversation that he first learned that he really did have a debt. So, the very next day, he paid the collectors in full over the phone.

Mortgage, auto loan and credit card rates at stake

So far, so normal. It was the day after Watts paid up that things started to go wrong. The collection agency updated his credit report to show a "paid collection account," something that could affect his ability to get good interest rates (or, indeed, get approved at all) the next time he applied for a credit card, mortgage, auto loan or any other sort of finance. And no amount of pleading would persuade the agency to correct what was clearly a wholly misleading entry.

This story has a happy ending for one main reason. John Watts, mild-mannered dad, ducked into the nearest metaphorical phone booth to emerge moments later as John G. Watts, Esq., attorney and partner in Watts & Herring, a Birmingham law firm that specializes in championing consumers who face unreasonable and unresponsive business bureaucracies. Yet, even when he revealed his secret identity, the collections people were unmoved. He had to go through a long process to get his credit report corrected.

Are collections agencies frequently unreasonable?

In an Apr. 27 email, Watts wrote: "It was then that it hit me -- If these companies will treat me, a lawyer who sues companies, this way, then how much worse will they treat people who are not lawyers?"

Good question. But the answer is far from reassuring. According to an Apr. 30 report in Collections & Credit Risk, a trade journal for those who work in the debt industry, 562 different collections agencies were sued by consumers. Ah, yes, you say, but over what period? Over a year, that wouldn't be too bad. Over six months, it might be worrying. Over a quarter? It's starting to look bad.

But the reality is far worse. Those suits were filed just between April 1-15 this year. Amazingly, the story goes on: "The drop in FDCPA [Fair Debt Collection Practices Act] cases likely can be attributed to the fact that five weekend dates fell in the short 15-day period." In other words, if the calendar had been a little different, there would probably have been significantly more filings.

It really could be you

Some 78 of the suits filed in that brief period (7.8 per working day) were for actions under the Fair Credit Reporting Act, and so probably relate to issues surrounding disputed credit reports. Actually, that number may appear small when you discover how many mistakes there are in those files. SESLOC Federal Credit Union says: "Statistics show that 70% of all credit reports contain at least one error."

Of course, most of those are likely minor, and too small to affect the credit card rates or other finance deal you're offered when you next make an application. However, there's no guarantee that's going to be the case. When IndexCreditCards.com visited this topic back in October 2010, it quoted Ray Martin of CBS:

My advice to folks: get a copy of your credit report and review it NOW. If you notice an error when you are applying for a loan or a job, then it is too late. You won't get the error fixed before they see your report and that error could end up costing you big time.

What to do if it is you

And the article containing that quote (Five rules for fixing credit errors), suggested strategies that could help you to correct mistakes. In particular, it proposed that you:

  1. Don't rely on credit bureaus to treat you fairly. They are paid by collection agencies, credit card companies, banks, and other businesses. And he who pays the piper…
  2. Avoid using the online dispute-resolution services that credit bureaus offer.
  3. Instead, write polite and business-like letters, and send them using the U.S. Postal Service's "certified mail, return receipt requested" option. Be sure to keep copies of all correspondence.
  4. Enclose copies (retain the originals) of credit card statements, police reports, court judgments and any other documentary evidence of claims you make in your letters.
  5. As a very last resort, be prepared to use an attorney who's an expert in consumer debt matters. To avoid upfront fees, find one that's willing to take your case on a contingency basis. That also means you won't have to pay fees if you ultimately lose your case.

With luck, you may never need that advice. But, as John Watts's story shows, you can find yourself battling collection agencies and credit bureaus no matter how blameless you are.

Published 08/29/12 (Modified 11/21/13)


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