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 right to report the account to Credit Bureaus if he has adequate proof regarding the authenticity of the debt. Top three Credit Bureaus of USA are Equifax, Transunion and Experian.
Most small businesses do not do Credit reporting them self. 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 if their collection efforts have failed and the original creditor wishes to report this delinquency on debtor’s Credit History report. This entry on can stay on your 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 access credit reports of debtors in some cases, they are usually able to find one or more missing information ( like Debtor’s DOB and address) by reverse lookup using the Debtor’s SSN.
Even though Credit Reporting is indeed a useful tool, it should be used judiciously. Debtor’s has his own consumer rights, if an entry has been incorrectly reported to the Credit Bureaus then debtor can dispute it, and in some extreme cases may even file a lawsuit in corrective actions are not taken on time. If the inaccurate information cannot be verified, the consumer reporting agency has a responsibility to remove it. It is better to continue to work with debtor to recover money than to insist the collection agency to report the matter to Credit Bureaus at the earliest.
Benefits of Credit Reporting
Reporting a bad debt to Credit Bureaus definitely has some benefits.
1. It indicates 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, 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 frauds 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 a genuine case of accounts receivable 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 actually motivates the client to pay in a timely manner because it helps them to establish a good credit.
6. Debtors can sometime agree to pay in exchange for the entry to be removed from his credit history report.
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.