Reporting Errors Holding Credit Scores Down

Consumers who have had a major meltdown in their finances have a steep hill to climb to repair their credit scores.

This seldom mentioned reporting error compounds the problem. Here’s what happens:

When a consumer lets a credit card balance become delinquent, the account will begin to show on his or her credit report as 30, 60, 90, and 120 days late. If no payment is made, the account will eventually be flagged as having gone into collections or legal action.

Meanwhile, the credit card issuer will have been sending letters and making phone calls in an attempt to collect. If the consumer fails to respond and the creditor determines that the account might be uncollectable, it will be sold to a collection agency, who will start the whole thing all over again. If they’re unsuccessful, they’ll sell it to yet another agency. This can go on and on.

With each subsequent sale, the collection agencies are taking a bigger gamble over whether they’ll collect or not. Thus, each time the debt is sold, the price goes down, but that won’t reduce the balance owed. It is, however, the reason why some will contact consumers with an offer to accept a lower payoff.

The reporting error: When the account is sold, the original creditor is supposed to drop the balance owed to zero – because they are no longer entitled to the money. The collection agency’s interest should appear on the credit report in its place.

But that doesn’t always happen. Instead, the credit report can now appear as if the consumer has two outstanding debts in that amount. And if the account is sold multiple times, that one past due account could show up as 3, 4, or more accounts past due.

For consumers struggling to climb out of a hole and rebuild credit, this mistake can be devastating. That fact that it happens often is just one more reason why it’s wise for every consumer to keep a close eye on their credit report.

If it happens to you, contact the credit bureau and begin the dispute process. Because the credit bureaus have systems in place to file disputes, contacting them will be simpler than contacting the creditor.

On the other hand, if your credit report shows negative information more than 7 years old or reports an outstanding balance that has been paid off, do contact the lender directly. Note: Whether you contact a credit bureau or a creditor, carefully document every phone call, email, and postal mail contact. Take names!

The sooner you catch mistakes, the easier they are to correct. So no matter whether your credit is poor or excellent, check that report regularly.

Comments are closed.

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.