Credit question for those in the industry...

[Descartes]

I'm having an argument with a friend of mine regarding how not paying off a debt could affect one's credit.

He indicated to me that his bank wrote off his car as "bad debt". Now, he was working out a deal w/ a collection agency who was trying to, from what I understand, collect on the remaining amount after they sold it at an auction.

He's telling me that the collection agency cannot cause any detriment to his credit simply because the bank already wrote it off as "bad debt". I thought that the collection agency could report his non-payment of this remainder because it was essentially a "new" account. Am I wrong?

It seems to me that simply not paying the remaining amount would most certainly end up on your credit in some way.

I know there are several on ATOT who have great insight into the credit world. I'll be giving him this link; show him your knowledge

[edit]Ok, after he read this, he tells me that the remaining amount *after* the bank sold the car is what's considered the "bad debt", not the amount for the car itself.[/edit]

 

[LostHiWay]

It really doesn't matter if the collection agency can report the non-payment. His credit is already RUINED for at least 7 years because of the charge off by the bank.

It sounds like what happened is the bank sold the car at an auction because he didn't pay for it. The price they got didn't cover what he owed them so they are legally allowed to get the rest of the money from him. They then sold the debt to a collection agency. So yes the collection agency can put more negitive marks on his credit report if he doesn't pay them.

 

[wyvrn]

Collection agencies CAN NOT report negative information. They can relay information to the creditor, which can report negative information. I belive this is covered in the Fair Credit Reporting Act.

So basically, once the account is written off by the creditor as a bad debt, the collection agencies have little leverage to collect on debt. All they are are companies that buy the note from the creditor for pennies on the dollar and attempt to collect as much as they can for profit.

 

[LostHiWay]

Originally posted by: wyvrn
Collection agencies CAN NOT report negative information. They can relay information to the creditor, which can report negative information. I belive this is covered in the Fair Credit Reporting Act.

Not if the orginal creditor sold the debt to the collection agency..which is usually what happens with banks and credit cards

 

[wyvrn]

Hmm.. I need to go back and read the FCRA, but I still think you are wrong.

My readings of the FCRA centered on disputing invalid credit accounts, not written-off debt since I never had any write-offs.

Originally posted by: LostHiWay

Originally posted by: wyvrn
Collection agencies CAN NOT report negative information. They can relay information to the creditor, which can report negative information. I belive this is covered in the Fair Credit Reporting Act.

Not if the orginal creditor sold the debt to the collection agency..which is usually what happens with banks and credit cards

 

[Descartes]

So....

The bank could call it "bad debt", then sell it off to a collection agency who could then report lack of payment again?

I was trying to convince him that he should pay the debt, but... will it even make a difference for him?

 

[LostHiWay]

Originally posted by: wyvrn
Hmm.. I need to go back and read the FCRA, but I still think you are wrong.

My readings of the FCRA centered on disputing invalid credit accounts, not written-off debt since I never had any write-offs.

Originally posted by: LostHiWay

Originally posted by: wyvrn
Collection agencies CAN NOT report negative information. They can relay information to the creditor, which can report negative information. I belive this is covered in the Fair Credit Reporting Act.

Not if the orginal creditor sold the debt to the collection agency..which is usually what happens with banks and credit cards

I'm almost positive the only way a collection agency can't report you is if they are contracted by a creditor to get payment, then only the orginal creditor can put neg marks on a report. But they can if they buy the debt from them.

 

[LostHiWay]

Originally posted by: Descartes
So....

The bank could call it "bad debt", then sell it off to a collection agency who could then report lack of payment again?

I was trying to convince him that he should pay the debt, but... will it even make a difference for him?

Well like I said his credit is already ruined for at least 7 years...if he pays the debt it's not like it's all going to alright again.

 

[Descartes]

Well like I said his credit is already ruined for at least 7 years...if he pays the debt it's not like it's all going to alright again.

Agreed, but he's saying why even bother paying the remaining amount. I was arguing that he needed to at least try and make good on his debts...

Thanks for the info guys...

 

[wyvrn]

I'm almost positive the only way a collection agency can't report you is if they are contracted by a creditor to get payment, then only the orginal creditor can put neg marks on a report. But they can if they buy the debt from them.

Ok I will go along with that. But it seems like double jeopardy, a person could get penalized more than once for the same debt. That doesn't make any sense and needs to be changed if it is true. Like if the debt is sold, then the ORIGINAL creditor needs to remove their negative rating on the debt and let the secondary creditor report. Otherwise, credit score gets nailed twice for the same account.

 

[Corn]

I'm looking at a credit report this very moment that contains several trades from collection accounts: Everything from medical collections to a gym membership.

wyvrn, collection agencies can, and most certainly do, report "negative" information. Those debts are not listed in a similar manner as the traditional lenders do (as in a month by month accounting of how they are paid) and instead are listed as either outstanding, paid in full, or settled for less than the full balance.

[edit]Generally in the case which began the topic of this thread, the former creditor will list the account as transferred or sold--however the prior repayment history information is still listed.

 

[Vic]

Descartes, your friend is completely wrong.

Collection agencies can and do report negative information on credit reports. I am "in the industry" and I pull credit reports all day long.

If your friend had negative equity in his car and the amount collected at auction after repossession was not enough to cover the remaining balance owed to the lender, then your friend does indeed owe the deficiency balance. By refusing to pay his lender this balance, he has only damaged his credit further and increased the amount owed by having it sent to collection. If the balance is substantial (>$2,000 for example), the next step will be for the collection agency to file civil court judgments against him and possibly lien any real estate he may own.
You'll excuse me if I have no sympathy for your friend. If he couldn't make the payments, he shouldn't have signed for the money.

Ok I will go along with that. But it seems like double jeopardy, a person could get penalized more than once for the same debt. That doesn't make any sense and needs to be changed if it is true. Like if the debt is sold, then the ORIGINAL creditor needs to remove their negative rating on the debt and let the secondary creditor report. Otherwise, credit score gets nailed twice for the same account.

I don't understand your reasoning. Credit is entirely civil, not criminal, so "double jeopardy" doesn't apply. This is what happens to people who don't pay their bills. If you don't like it, remember to pay your bills on time.

 

[wyvrn]

don't understand your reasoning. Credit is entirely civil, not criminal, so "double jeopardy" doesn't apply. This is what happens to people who don't pay their bills. If you don't like it, remember to pay your bills on time.

First of all, I have a pretty good credit history and DO pay my bills on time. I guess you assume since I have any interest in credit law that I must have a bad record, hmm? Pretty lousy assumption on your part.

As far as my previous point, I will explain for the mentally challenged. Say you have a credit account with JC Penny's and don't pay your bill for 120 days. Well now, you have a 120 day "late" on your credit from JC Penny. Now suppose JC Penny gets tired of waiting and writes your account off, sells the account to a credit collection agency, and then reports the write-off to the credit report companies. That is currently ONE negative on your credit report for the JC Penny account that will drag down your FICO score.

Now the credit collection agency attempts to get its money, and you refuse to pay them. They report the account ALSO. For the very same write-off, you have TWO negative marks on your credit, and hence a double dip on your credit score. Sure, you might have been negligent on paying this account, but does the person deserve to have double negative reporting for the VERY SAME ACCOUNT?

That is what sounds would happen in this instance, correct me if I am wrong. I believe creditors should report bad debt, but I don't think overpenalizing someone is the answer either. Sometimes people make mistakes and eventually own up to their responsibilities. In this instance, that person would have to contact and negotiate TWICE in regards to having this negative information removed from their report. That is a silly law, if I am understanding it correctly.

 

[Frenchie]

PSYWVic is correct. I am a collections attorney and work for the credit cards companies, banks, and collection agencies. The original creditor is usually the one doing the reporting to the credit reporting agencies. However, not all creditros do the reporting, some will let the collection agency that they are using do the reporting. Others will let the collection attorney do it.

As was said, if you default on an auto loan, they repossess the vehicle, clean it up, store it, sell it at auction, and then subtract the auction proceeds from the amount owing. They then add in the repo costs, cleaning and storage costs, attorneys fees, late fees, etc. to get the deficiency balance. If that balance is over 1k, it may be sent to an attorney to obtain a deficiency judgment. I do it all the time, and am actually in the process of getting a deficiency judgment against ex-champ Larry Holmes for not completing the lease on his Mercedes.

Will paying it off reflect better on his credit report than a judgment? Yep. Its better to have paid/settled than written off/collections/judgment.

 

[bozo1]

In this instance, that person would have to contact and negotiate TWICE in regards to having this negative information removed from their report.

The debt will only show up once. The bank has reported it as a charge off. That will stay regardless if he pays it or not. If he does pay it, it will still show as a charge off but the balance due should be updated to be 0.

Usually, the only time a collection agency makes an entry themselves is if the original debt wasn't on the credit report to begin with - something like a gym membership, bad checks, hospital bill, etc. Now if they sue him and get a judgement against him, that will show up as a 2nd entry.

A charge off is about as bad as it gets on a credit report. His score will be screwed for 7 years. However, some lenders (for mortgages especially) look way beyond a persons credit score. Having the 'charge off' there with a 0 balance would be much better for him in that case than if he doesn't pay at all.

Now if the rest of his report isn't too bad, sometimes you can negotiate with creditors. Some will agree to remove the negative information if he pays the debt. I've had creditors in the past do that for me, I've had some that wouldn't do it. If they go for it, make sure you get it in writing before you give them any coins.

 

[kherman]

Originally posted by: Descartes
I'm having an argument with a friend of mine regarding how not paying off a debt could affect one's credit.

He indicated to me that his bank wrote off his car as "bad debt". Now, he was working out a deal w/ a collection agency who was trying to, from what I understand, collect on the remaining amount after they sold it at an auction.

He's telling me that the collection agency cannot cause any detriment to his credit simply because the bank already wrote it off as "bad debt". I thought that the collection agency could report his non-payment of this remainder because it was essentially a "new" account. Am I wrong?

It seems to me that simply not paying the remaining amount would most certainly end up on your credit in some way.

I know there are several on ATOT who have great insight into the credit world. I'll be giving him this link; show him your knowledge

[edit]Ok, after he read this, he tells me that the remaining amount *after* the bank sold the car is what's considered the "bad debt", not the amount for the car itself.[/edit]

If he doesn't pay the collection agency on his own, it's just a matter of time till there is a judgement made that will doc his pay or go after his bank accounts. Tell him never to use a bank again if he refuses payment. If so, there is usually an interest rate on everything (10% perhaps). if the money is in the bank and the collection agency finds out about it, the money will be taken from it. Any joint accounts will be taken too.

 

[StageLeft]

Originally posted by: wyvrn

don't understand your reasoning. Credit is entirely civil, not criminal, so "double jeopardy" doesn't apply. This is what happens to people who don't pay their bills. If you don't like it, remember to pay your bills on time.

First of all, I have a pretty good credit history and DO pay my bills on time. I guess you assume since I have any interest in credit law that I must have a bad record, hmm? Pretty lousy assumption on your part.

As far as my previous point, I will explain for the mentally challenged. Say you have a credit account with JC Penny's and don't pay your bill for 120 days. Well now, you have a 120 day "late" on your credit from JC Penny. Now suppose JC Penny gets tired of waiting and writes your account off, sells the account to a credit collection agency, and then reports the write-off to the credit report companies. That is currently ONE negative on your credit report for the JC Penny account that will drag down your FICO score.

Now the credit collection agency attempts to get its money, and you refuse to pay them. They report the account ALSO. For the very same write-off, you have TWO negative marks on your credit, and hence a double dip on your credit score. Sure, you might have been negligent on paying this account, but does the person deserve to have double negative reporting for the VERY SAME ACCOUNT?

That is what sounds would happen in this instance, correct me if I am wrong. I believe creditors should report bad debt, but I don't think overpenalizing someone is the answer either. Sometimes people make mistakes and eventually own up to their responsibilities. In this instance, that person would have to contact and negotiate TWICE in regards to having this negative information removed from their report. That is a silly law, if I am understanding it correctly.

I'm not sure what hte law is since some people have conflicting ideas here but regardless of what it is I agree that in the example you listed it's not very nice to double report him. Let's say the collection agency says "screw this guy" and sells the debt again to another, and then another. Potentially he could be reported several times in such a scenario. Clearly it makes sense that a person should be listed only once per loan amount, regardless of how the bank later handles it internally (or externally with a collection agency).

 

[Vic]

Originally posted by: wyvrn

don't understand your reasoning. Credit is entirely civil, not criminal, so "double jeopardy" doesn't apply. This is what happens to people who don't pay their bills. If you don't like it, remember to pay your bills on time.

First of all, I have a pretty good credit history and DO pay my bills on time. I guess you assume since I have any interest in credit law that I must have a bad record, hmm? Pretty lousy assumption on your part.

As far as my previous point, I will explain for the mentally challenged. Say you have a credit account with JC Penny's and don't pay your bill for 120 days. Well now, you have a 120 day "late" on your credit from JC Penny. Now suppose JC Penny gets tired of waiting and writes your account off, sells the account to a credit collection agency, and then reports the write-off to the credit report companies. That is currently ONE negative on your credit report for the JC Penny account that will drag down your FICO score.

Now the credit collection agency attempts to get its money, and you refuse to pay them. They report the account ALSO. For the very same write-off, you have TWO negative marks on your credit, and hence a double dip on your credit score. Sure, you might have been negligent on paying this account, but does the person deserve to have double negative reporting for the VERY SAME ACCOUNT?

That is what sounds would happen in this instance, correct me if I am wrong. I believe creditors should report bad debt, but I don't think overpenalizing someone is the answer either. Sometimes people make mistakes and eventually own up to their responsibilities. In this instance, that person would have to contact and negotiate TWICE in regards to having this negative information removed from their report. That is a silly law, if I am understanding it correctly.

Hmm... I forgot to follow up on this thread.
I made no judgement or assumption regarding your credit history, wyvrn, nor was I even attempting to imply what type of credit you may or may not have. All I did was state a fact and a warning, which is that if you were to borrow money and then refuse to pay it back, that you would have poor credit. As I said, if you don't like that, either don't borrow or pay your bills on time. Sounds simple, doesn't it? Can you see anywhere that I might have implied that you, personally, must have bad credit now? Try not to take everything so personally.
The example you gave is more or less how it works and it is entirely fair. Two things you didn't note is that the Penneys account (in the example), now charged-off with a zero balance, becomes a "Closed Account" and carries a lesser weight upon the borrowers credit scoring (allowing the score to improve over time), and that collection accounts do not report a monthly status (30 day, 60 day, etc) like regular accounts. The collection account will merely report as unpaid until it actually is paid. So, in effect, it is not a double "hit" to the credit score, but a series of single "hits" of increasing severity (first a late account, then a charge-off, then a collection, then a judgement, etc).
I have worked in credit for many years and I can tell you that, when reported accurately, our system of credit is the fairest system of any kind that I have ever seen.

 

[kranky]

Originally posted by: Skoorb

I'm not sure what hte law is since some people have conflicting ideas here but regardless of what it is I agree that in the example you listed it's not very nice to double report him. Let's say the collection agency says "screw this guy" and sells the debt again to another, and then another. Potentially he could be reported several times in such a scenario. Clearly it makes sense that a person should be listed only once per loan amount, regardless of how the bank later handles it internally (or externally with a collection agency).[/quote]

But there are two sides to that coin. If I owe Bank A $10,000 on my credit card and quit paying the bills, then when the bank threatens to sue me I transfer the balance to a card I have at Bank B, (then repeat with Bank C, Bank D...) I could use the argument that it's the same debt and it should only appear on my report one time.

 

[StageLeft]

Originally posted by: kranky

Originally posted by: Skoorb

I'm not sure what hte law is since some people have conflicting ideas here but regardless of what it is I agree that in the example you listed it's not very nice to double report him. Let's say the collection agency says "screw this guy" and sells the debt again to another, and then another. Potentially he could be reported several times in such a scenario. Clearly it makes sense that a person should be listed only once per loan amount, regardless of how the bank later handles it internally (or externally with a collection agency).

But there are two sides to that coin. If I owe Bank A $10,000 on my credit card and quit paying the bills, then when the bank threatens to sue me I transfer the balance to a card I have at Bank B, (then repeat with Bank C, Bank D...) I could use the argument that it's the same debt and it should only appear on my report one time.[/quote]
Well that's just a silly thing to do! If you'd of transfered from Bank A to bank B before Bank A reported you then Bank A would not have a problem with you, only bank B.

 

[wyvrn]

PSYWVic


You made it personal with this direct warning:

This is what happens to people who don't pay their bills. If you don't like it, remember to pay your bills on time.

If that was not for me or others in this thread, who was it for silly boy? First, I don't have any major credit problems. Second, I don't need you nor anyone else legislating morality to me.

The credit laws should be fair, and inequalities need to be corrected. It's not good enough that "system of credit is the fairest system of any kind that I have ever seen." That's a similar argument to saying that slavery was ok in the 18th century in America because this country had the broadest voting rights of any nation at the time, so we don't need to improve upon it. The credit system may be good, but there are a ton on inequalities in power. Basically, if any creditor wants to report inaccurate information (whether on purpose or by genuine accident), it is a laborious process to disprove, as an individual, this information. It costs time, money, and causes many people stress.

For example: I spent MANY MONTHS disputing credit accounts I had never opened but were on my credit report. The crown example was an account my father opened over 40 years ago that ended up on my report. First of all, I am 27 years old now (21 at the time I first noticed this bogus information), so the account could not have possibly been mine. Secondly, I was 18 months old when my father died, so it is impossible for me to have ANY credit with this company. Not to mention the obvious fact that my father and I had different names and social security numbers, neither of which the creditor nor credit reporting agencies bothered to even check until I threatened legal action. This is one of many such examples I have seen for myself and others.

The credit system has a fair amount of room for improvement, I would say.

 

[Corn]

For example: I spent MANY MONTHS disputing credit accounts I had never opened but were on my credit report. The crown example was an account my father opened over 40 years ago that ended up on my report. First of all, I am 27 years old now (21 at the time I first noticed this bogus information), so the account could not have possibly been mine. Secondly, I was 18 months old when my father died, so it is impossible for me to have ANY credit with this company. Not to mention the obvious fact that my father and I had different names and social security numbers, neither of which the creditor nor credit reporting agencies bothered to even check until I threatened legal action. This is one of many such examples I have seen for myself and others.

Allow me to be the first to claim bullsh1t on that "story". I have a hard time believing that an account, which had no activity for over 20 years, that was opened by someone of a different name and social security number, would somehow end up on your credit report. You will have a better chance of convincing me the tooth fairy exists..........

....and you should heed PSYWVic's advice, it's simply a statement of fact and resembles nothing that would amount to legislating morality.

I never thought for a second it was directed solely to you, but yes, it was, and is, fair warning.

 

[Vic]

wyvrn, I said that:

I have worked in credit for many years and I can tell you that, when reported accurately, our system of credit is the fairest system of any kind that I have ever seen.

The examples you gave in your case are obvious inaccurate reportings. Legislation and litigation are working furiously at this time to correct these issues, but the problems are still ongoing. In your case, can I assume that you and your father had the same name (i.e. you are a "jr.")? Unfortunately, your problem is relatively common, but can be fixed with enough persistence. I agree with Corn about the age of the account though. I have never seen a 40 year-old account that had been inactive for 20 years still reporting. In the interest of keeping this civil, I won't call bullsh!t, but I will say that that would be a highly unusual case.
Regardless, your issue is entirely unrelated to that of the original poster. Yours is an obvious mistake by the bureaus, the other is a clear-cut case of deadbeatism. But at no point was I trying to "legislate morality." Lenders created the credit reporting industry (not the government) for the purpose of informing each other on deadbeats and slow pays and without the ability for the reports to show that kind of information, credit reporting would be worthless.
Another thing to keep in mind is that all 3 bureaus are automated and currently are ranked among the largest databases in the world. Perfection is impossible for humans to acheive, and with the sheer size of these databases, mistakes are inevitable. To protect yourself, I recommend: paying your bills on time; safeguarding your personal information to prevent fraud and identity theft; checking your credit from time to time (for example, once a year) for accuracy; and promptly and properly disputing inaccurate information when found with both the bureaus and the respective creditors.
And once again, what I said was NOT personal, just (IMO) sound advice. Allow me to rephrase: if one does not want bad credit, one should borrow wisely and repay one's debts in a timely manner, as agreed.

edited: couple of minor typos

 

[wyvrn]

I have never seen a 40 year-old account that had been inactive for 20 years still reporting. In the interest of keeping this civil, I won't call bullsh!t, but I will say that that would be a highly unusual case.

No, its a true story. I couldn't believe it either. But my point is when creditors report inaccurate information about you, its devilishly hard to remove it. It becomes a your word against theirs thing, and they always win. The dispution method is biased in favor of the creditor.