Credit reporting should not be used as a revenge tool or a threat; it is against the debt collection laws. But a creditor whose account becomes seriously past due has the legal right to report the account to Credit Bureaus if he has adequate proof regarding the authenticity of the debt. The top three Credit Bureaus of the USA are Equifax, Transunion and Experian.
Most small businesses do not do Credit reporting themself. When the account is 30 days or more past due, they forward the account to a debt collection agency.
A Collection Agency can report the account to Credit Bureaus after their debt collection efforts have failed and the original creditor wishes to report this delinquency on the debtor’s Credit History report. This entry can stay on the debtor’s credit report for up to 7 years.
There are several laws around Credit Bureau Reporting since it adversely impacts the credit history of debtors or patients. According to the Fair Credit Reporting Act (FCRA), all accounts reported after September 15, 2017, should have Full Name, Address, Full SSN and Full Date of birth. Since collection agencies use skip-tracing services and may also have access to debtor credit reports, they can usually find one or more missing information by reverse lookup using the Debtor’s SSN. For example – if the debtor’s DOB is missing, then a collection agency can find it using the debtor’s SSN.
Although Credit Reporting is a powerful tool, it should be used judiciously. A debtor has his own consumer rights. If an entry has been reported incorrectly to the Credit Bureaus, the debtor can dispute it. In extreme cases, the debtor may even file a lawsuit if corrective actions are not taken on time. If the creditor cannot verify any information, the consumer reporting agency is responsible for removing it. It is better to continue working with the debtor to recover the money than to instruct the collection agency to report the matter to Credit Bureaus at the earliest opportunity.
Benefits of Credit Reporting
Reporting a debt to Credit Bureaus has some benefits.
1. It indicates to the debtor that you are serious about recovering your money.
2. If you sue the debtor in court, your attorney can tell the judge that despite all efforts, like making calls and credit reporting, the debtor has not paid. Your case can potentially become stronger.
3. Since millions of Americans check their free credit report annually on annualcreditreport.com, it reduces the chances of mistakes and fraud if there has been a credit reporting error by the original creditor or the collections agency. These issues require immediate attention and must be rectified promptly.
4. If a consumer is aware that you do not hesitate to report genuine cases of unpaid bills to Credit Bureaus, it will reduce the occurrence of late payments and defaults.
5. Not just the bad debts, if you report debts paid in time (like car loans, credit card loans, etc), then it motivates the client to make payments promptly because it helps them to establish good credit.
6. Debtors can sometimes agree to pay in exchange for the entry to be removed from his credit history report. However, this approach is not recommended.
Opening an account with a credit bureau has other benefits too. It allows original creditors to check the credit ratings of their prospective clients and for the collection agencies, it helps to compute the probability of getting paid.
Disadvantages of Credit Reporting
1. Once an account has been reported, the debtor’s worst nightmare has come true. He thinks, “Now what? Or What worse can happen?“. The debtor loses the fear as the worse that could have happened to his credit history report has already happened. Credit Bureau reporting as a negotiating tool is off the table now.
2. Incorrect reporting ( incorrect amount or other mistakes ) can have legal repercussions. Not many, but a few debtors may sue back the creditor or the collection agency for damages.
3. Medical debts, once paid off, should be removed from the credit report. This creates more work for the collection agency.
Responsibilities of Original Creditors towards their Collection Agency:
– Inform your collection agency of any payments received promptly
– Inform of any disputes or bankruptcies immediately
– Provide substantiation of all debts assigned at the time of placement or as requested
– Always accurately report the balance and the status of the account
If you are looking for a debt collection agency that can work on your accounts receivable in a cost-effective way; even report your unpaid accounts to credit bureaus if you request them, Contact Us