How can I prove I'm paying down bad debt?
March 28, 2011 6:19 PM   Subscribe

Credit Report Confusion: I recently pulled my free credit reports (I do it every year about this time), and there were no surprises. However, I have a couple questions about how closed and collection accounts are usually reported. (Long-ish question).

I have two adverse accounts. The first one was "closed" three years ago. It was a bill from my university, for which I was once 90 days late in making a payment, though it never went to collections. I finished paying the whole thing in 2008, and the account was then closed. However, one report says it will remain there until 2018. Why would it take ten years to go away, especially when the original late payment and reporting was in 2005?

My second question is about my more egregious adverse account. This is a debt for a few thousand dollars that did go to collections in March 2010 after a series of unfortunate events in my life. I have been working with the collection agency since then to pay down the debt. We made a payment arrangement last March, and after I began working again I pay a little bit above that through automatic payments. My credit report, however, does not reflect a payment plan or monthly payments for this account. There are fields for that information, but they are blank. On my Experian report, the section in which they could report payments made each month simply says CA (Collection Account) next to each month instead of the dollar amount I paid. The original balance is there, with the new balance below it, so at least it looks like I've paid something. They report that I made a payment this month, but they also say that the account was "last reported" 3/2011. Does this mean that they are re-reporting the debt each month so that the seven year clock starts over? Or am I being paranoid?

I'm not planning on applying for any credit any time soon, but I'm worried that in case I do, it looks as though I'm not taking responsibility for this debt (at least not consistently).

Is there any way I can ask the collection agency to change the way they report this, or should I just offer the salient details to anyone who needs to look at my credit? Is this normal, and not as bad as I think it is (besides having bad debt)? For what it's worth, when we set the payment plan, the woman I spoke with was extremely nice, and they promptly sent all information I requested when I was first working this out. I'm not afraid to call them up again, but I want to make sure it's not a fool's errand.

To be clear, I have no qualms about paying back what I owe or anything like that. In all other areas of my life I pay my bills on time and live within my means. I just want my credit report to reflect that I'm chipping away at this bad debt as much as I can.

Thanks in advance for any information.
posted by anonymous to Work & Money (3 answers total) 2 users marked this as a favorite
You won't go wrong to always assume in every instance that credit agencies are being shit-heads. The re-reporting thing is very likely to reset the "seven year" timeclock.
posted by notsnot at 7:45 PM on March 28, 2011

- you could write a letter to the university asking them to remove that one, explaining that you were only late once and it's been paid in full. They can do that, although they don't have to. Reporting it as they have seems a bit severe for one late period.

- the one in collections is going to be tougher. I don't know how that normally works, but I suspect the fields for monthly payments is intended for normal installment payments, not payments after it's gone to collections. Yes, it's going to be whatever the full period AFTER it's paid in full before it goes away.

If your credit is otherwise clean, I'd say your credit is not great, but there are many people who are worse off. My *guess* is that there's not much you can do to change how the collections agency is reporting things; they're accurately reporting the state of affairs. It's an account in collections. Yes, you're making monthly payments, but it's still in collections.

The way I would deal with it if applying for credit is that usually a potential creditor will ask for an explanation about the bad account. This is where you get a chance to tell them everything you've laid out here.

The best way to deal with it is to pay it off as fast as you can, then ask them to report it to the bureaus promptly as paid in full and closed. That entry will still be there a while, but it will be much easier to explain once it's behind you.

My guess is that in this position, you could probably get a car loan or a mortgage with a reasonable down payment (although if I were in your shoes and had any liquid savings above a $1,000 for emergencies, I'd pay down the debt with it first), although your rates might be a tad higher. If you don't have one now, you might have a hard time getting a credit card, although a local bank might work with you on that.

As far as how "normal" this is - it is what it is. In general, I believe most people put on fronts that they are doing better than they are. A high percentage of americans are deeply in debt, have "negative equity" in their house, etc. Many people have dings on their credit. Yours doesn't sound as bad as many I've heard of. is a good resource for learning about getting out of debt and how credit bureaus and collection agencies work, if you can stand the sometimes strident tone.
posted by randomkeystrike at 7:59 PM on March 28, 2011

The way I would deal with it if applying for credit is that usually a potential creditor will ask for an explanation about the bad account. This is where you get a chance to tell them everything you've laid out here.

Actually, you can submit an explanation to the credit reporting companies and they can add it to your report, so anyone who requests a copy will see it right away.
posted by EmpressCallipygos at 6:49 AM on March 29, 2011

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