When Good Credit Reports Go Bad: How To Dispute Collections Errors

My credit score is WHAT?For a very long time, I would only check my credit report about every 6 months. I had a good score so I wasn’t too worried about it. Then it happened. I got my credit report and saw that my score had tanked almost 50 points since my last report. I couldn’t believe it. How could this be?

And then I found the reason when scanning the report – a collections account was listed that wasn’t mine.

My Problem

About 6 years ago I lived at an apartment complex and about half-way through my lease I upgraded to a bigger unit to accommodate a new roommate. Even though I had canceled the electricity account at the old apartment, and opened a new one in the new apartment, the energy company somehow reopened the old account in my name even after I received my final bill and cancellation confirmation.

The new residents apparently realized the mistake and decided not to get the utilities in their own names. They ignored their electric bills and I was none-the-wiser. How would I know – they were getting the bills, not me. Years later, I see this account in collections pop up and my score drops 50 points.  That was my only notification. 

Now I was faced with the daunting task of proving this 6 year old electric bill wasn’t mine.  I needed to get it off my credit report pronto.

My Solution

I gave myself a few minutes to calm down then I started ripping through my old boxes of paperwork trying to find any evidence that could support my case. Miraculously, my utility bills from those two apartments made it through 3 moves. Armed with the account numbers and bills associated with both apartments I developed a plan of attack.

First I called the energy company to get answers. I gently explained what happened and how I was working to get it resolved. I asked them to look up the accounts and tell me all the information associated with those accounts. I also had them fax me the entire payment histories for my records. It took speaking to several people (and even management) but they did eventually acknowledge that I canceled the account and any bills after that point were not my responsibility. I asked them to send me a ledger with the account number and a zero balance for my records.

Next, I called the collections agency (I got the number from the energy company) and explained the situation. I faxed them the copy of the ledger showing I owed nothing. I asked them to remove the error from my credit report but they said they couldn’t remove the account until the complaining company requested that it be dropped or they saw proof of payment.  I wasn’t about to pay a bill that wasn’t mine so it came down to the energy company needing to withdraw the claim with them directly.

I then called the energy company, asked for the manager that had helped me previously, and explained that I needed them to escalate the issue and have their accounting department contact the collections agency. I got a confirmation on this action and kept checking back.

After I was able to confirm with the collections agency that the matter was cleared I kept checking my credit report to see when it would drop off. In a little over a month the problem was gone.

Could this happen to you? I suppose so if it happened to me. Here’s how to deal with it:

Your Plan of Attack

1. Calm down and gather the facts. Seriously. I know how mad you will be because I’ve been there. Calling people immediately and screaming at them will not fix the problem any faster. Take a moment to look through your files to see if you have any information that could help disprove this claim. Get organized and have everything in order. You won’t be productive and rational if you are still fuming or unprepared.

2. Call the company that reported the account to the collections agency and get information/records. Explain the situation and try to resolve it with them before calling the collections agency.  It will save you a step.  If they are the ones that reported the problem they are the ones who can ultimately remove it from collections. Ask them to contact the collections agency immediately to withdraw the claim as an error. Make sure to write down everyone’s name, the time you called, and any confirmation numbers. Take detailed notes. This will help if there is a problem.

3. Call the collections agency yourself and try to resolve it from your end. I wasn’t about to sit and wait for the energy company to contact them. I put my problem on their radar by speaking to them about it as well. Fax them the information you received from the complaining company showing you are not responsible or that your account shows a zero balance. Make sure to speak politely to these folks even if they are rude to you. They deal with irate people all the time and you might not get very far if you turn into “just another angry caller”.

4. Follow up. Call the collections agency to make sure they got the information and to see if they have heard from the complaining company. Keep on top of it. They will not call you to keep you informed; you must call them to confirm when things get resolved. Do whatever it takes to help get the situation fixed.

5. Write the owner of your credit file. If no action has been taken to remove the incorrect information draft a letter explaining your case to the owner of your credit report (in my case it was CSC Credit Services). This agency will be listed on your credit report. Be sure to include copies of any proof supporting your claim. This letter will get them to launch their own investigation into the matter. Luckily, my case was resolved before I had to send it. I still have the letter in draft form though in case it ever pops back up.

6. Keep checking your credit report.  In my case, it took about 2 weeks to get the collection agency to withdraw the claim and it took over a month for it to actually drop off my credit report.  My score bounced back at that time, too.  Every case is different and it may take longer for yours to resolve.  Check your credit report monthly while you are waiting for this problem to clear up. 

Yes, you’ll be angry and you will expect them to remove the error immediately because it was their mistake. The reality is that it will take some time for the agencies to coordinate and update the report. Be patient – just not so patient that you forget about it.

Hopefully these steps will help you if you find yourself in a similar situation. Just know that if it is fraudulent it can be resolved.

On a side note – I was definitely lucky that I kept 7 years worth of records in this case. If I hadn’t this story might be a lot longer and more painful.

More information on disputing an error can be found from the Federal Trade Commision. 

5 Myths That Can Hurt Your FICO Score

Raise your FICO score to help save your penniesCredit – it’s not just for credit cards.  Credit plays a major role in determining your ability to borrow money, but it is used in many other places that you might not think of.  For instance, some employers will check your credit history as a pre-requisite to your being hired.  When you rent a home, most landlords will check your credit history to ensure you aren’t too much of a risk to rent to.  And when you want to shop around for a better price on your insurance, you better make sure your score is up to snuff. 

Do we really understand how our use (or abuse) of our credit can affect our FICO scores?  Your FICO score is a vital indication of your “credit health” and that little number can make a huge difference (especially in today’s credit climate) in what you pay for borrowed money.  It is in our best interest to keep our FICO scores as healthy as possible.

To help separate fact from fiction, let’s look at 5 FICO score myths that if followed could do more damage than good.

1. Close old accounts you aren’t using to boost your score. 

Although it is true that having “too many” open accounts can hurt your score, by the time you have opened the accounts it’s too late.  The act of opening too many accounts in a short time frame is the problem, and closing them will not improve your score.  Especially not with the older cards – in fact it could do more damage.

How it can hurt you:  Closing your oldest accounts will make your credit history seem shorter and the longer the history the better.  FICO looks at the age of the oldest account, the newest account, and the average age of all your accounts when considering the length of your credit history.  This history makes up 15% of your score.  Also, if you close out these accounts you will be decreasing the amount of untapped credit you have, which in turn makes the debt you do have appear to be more sizable (this is reflected in the debt-to-credit ratio). 

Keep the old accounts – make sure they don’t have any annual fees or costs associated with them and put the cards somewhere you won’t use them.  If you still want to close accounts for other reasons, take out the youngest with the lowest credit limits.  Just be aware it won’t increase your score.

2.  Checking your credit report too often can hurt your score. 

Often people are confused about what kind of credit check actually affects your score.  Ordering your own credit report/score has no negative effect.  It’s when you apply for new credit (e.g. a home/car loan or new credit card) when your score could take a hit.

How it can hurt you:  If you aren’t checking your credit report you aren’t checking for inaccuracies.  To keep your score at it’s highest you must check your report periodically to make sure the accounts and their information are correct.  This is even more important now that identity theft is on the rise.

3.  Large amounts of unused credit or high credit limits will lower your score. 

Having high credit limits available on your cards is actually good, provided you don’t actually use that credit.  Your debt-to-credit ratio, which is 30% of your FICO score, is the amount of revolving debt (credit card balances) in relation to the amount of available credit (credit limits).  Credit Bureaus use this measurement as a way to judge your ability to manage the credit you have.  You want this ratio under 30% if you can manage it.

Example: You have 3 open credit cards with credit limits of $4000, $2000, and $3000, equaling a total credit limit of $9000.  You have $1500 on one card and $1000 on a second card, equaling a total credit card balance of $2500.  You have used $2500 worth of your $9000 available credit, resulting in a debt-to-credit ratio of 28%.  Only 28% of your available credit is being used at this time.  The higher the percentage the more likely you could be considered overextended which hurts your score.

How it can hurt you:  If you are intentionally keeping your credit limits low (I have a friend who would call and have her credit limit reduced if the credit card companies tried to increase it) you are hurting your debt-to-credit ratio by making your balances appear to be a larger chunk of your available credit.  As your credit limit increases (or if your balances decrease) this ratio will lower which results in a more favorable score. 

Using the example above, if one of your cards raised your credit limit by $1000 (with your balances remaining the same) your debt-to-credit ratio would drop from 28% to 25%.  On the other hand, if you were to cancel the card with the $3000 credit limit without paying down on the other balances of $2500 to counteract the loss of credit limit, your new ratio would be 42%.  Ouch!

4.  You can get rid of unfavorable history by cancelling the card or paying off the balance.

One of my friends with a less-than-perfect credit history cancelled all her cards in the hopes they would be completely removed from the credit report.  Not so.  Your payment history makes up 35% of your FICO score and closing the accounts with detrimental histories will not make the negative information disappear.  While paying the balance in full is a great move and can improve other areas affecting your score, it will not remove the black smudges on the payment history.

How it can hurt you: Late payments associated with that account won’t go away if you cancel the account.  Closing accounts can hurt your debt-to-credit ratio (unless you pay down your other debt to compensate) and it can also affect your length of credit history if you are eliminating older accounts. 

If the adverse information is inaccurate be sure to contest it.  But if it is correctly reported the best bet is to pay the cards on-time, even if it is just the minimums.  Use the card to start building a good solid history of paying on-time and eventually your score will improve.

5.  Never using credit cards (or not having any credit cards) will raise your score.

Not having cards may help control your spending if available credit is too much of a temptation to splurge but it won’t help your score.  Keep in mind that someone who has managed his credit responsibly will likely have a higher score than someone who has little to no history. 

I have a relative that avoids credit cards.  He buys everything outright and never carries a mortgage or car loan.  Although this is ideal for avoiding interest it is not ideal in terms of building up a good credit history.  His score is good but he wishes he was within “bragging rights” range.  It is most likely the lack of history and active accounts affecting his score.

How it can hurt you:  Having too little credit history can lower your score, and if you have no accounts older than 6 months you might not even get a score at all.  They feel it is too little history on which to generate a score.  If you have a long but less-than-stellar history and have decided to ditch the cards completely you are losing out on a chance to “redeem” yourself.  FICO scores weigh the good and the bad and if you generate more good history your score will improve. 

Avoiding paying interest is a great policy to have but that doesn’t mean you can’t build up a credit history.  Only spend a small amount on a credit card (maybe charge gas on it) and be sure to pay the balance off every month in full and on-time.  That way, you build a favorable credit history and still maintain a no-interest lifestyle.