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Consumer Guide to Credit Reports – Part 3

Green paper frog sitting on coins

Welcome to part 3 of our consumer guide where we’ll explain how to review your credit report.  We know that reading a report for the first time is akin to learning a new language. It’s not for the untrained eye or faint of heart. Attorneys familiar with analyzing a credit report know how to:

  1. Identify the important and relevant information
  2. Take the appropriate action to address and correct mistakes; and
  3. Offer advice for financial planning to stabilize, improve, and maintain a high credit score

There are countless nuances to conducting a proper review and analyzing a credit report. Here are some red flags and sections that you should pay careful attention:

  • Collections
  • Account Status (Open vs. Closed)
  • Unknown or Fraudulent Accounts
  • Debt-to-Credit Ratio
  • Public Records
  • Inquiries (Hard vs. Soft)
  • Time-Barred Debts
  • Past Due Accounts

Don’t worry. We’ll take each one at a time…

Collections on your Credit Report

The “Collections” section of your credit report details accounts that have been turned over from the original creditor to a third-party debt collection agency. Failure to make payments is extremely detrimental to one’s credit score. Even if you pay the collection debt is paid in full, it will be listed on your credit report up to seven (7) years from the date of the first missed payment that led to the collection action. Obviously we recommend that our clients try to avoid having an account sent to a collection at all costs. When a collection agency becomes involved, it is usually very obvious due to frequent and aggressive attempts to collect the debt via phone calls and letters.

Sometimes there are extenuating circumstances and you may not be aware that a debt has been turned over to collections. Here’s an example. Terry Tenant, a residential tenant, graduates from college and moves but forgets to pay the final AT&T bill on his sublet. AT&T tries in vain to locate Terry Tenant. Terry Tenant is travelling abroad for 6 months and has completely forgotten about the AT& T bill. AT&T sends the “charged off” account to a ABC Collection Company. After 6 months of delinquency the bill is now listed as a “Collection” account on Terry’s credit report.

If an erroneous collections appears on your report, take immediate action to get it removed. If you’re having trouble paying an original creditor on time, attempt to negotiate with them before it goes to a collection agency.

Next time we’ll explain account status.

About Sean Hanley

Practicing law since 2007, Sean specializes in the ever-changing laws related to real estate, business and estate planning. Embracing technology with a focus on personalized service, he understands the challenges of living and thriving in Silicon Valley. Tapping into his education in economics and business administration, Sean also serves on the non-profit Willow Glen Business Association.

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