Debt Collectors are NOT Credit Repair Experts (But You Can Be)

Debt collection agencies are finding out the hard way that informed consumers can mean huge losses on their end. Take the debt collection agency National Recoveries Inc. Just last month they were forced to reimburse $175,000 in debts they had collected, due to their own faulty collection policies. They were also fined an additional $16,000 for the debt collection violation itself.

These types of fines generally do not occur unless informed consumers are making complaints. And people who are working through the credit repair process are the most informed about their state’s laws pertaining to debt collection.

While $175,000 may not seem like much, National Recoveries Inc. isn’t the only debt collection agency to be in the hot seat this year – Asset Acceptance recently agreed to pay $2.5 million dollars in fines for deceptive debt collection practices. According to USA Today, the FTC claims that not only did Asset Acceptance try to collect debts that were past the statute of limitations, but they also tried to collect on debts that weren’t even owed!

This is why the credit repair process will always be so crucial. Without these checks and balances, debt collection companies would be free to use whatever underhanded tactics they could think of in order to get people to pay up – whether the person in question actually owes the debt or not.

If there are negative items on your credit report, you owe it to yourself to at least be informed of your rights and ways that you can repair your credit. It’s the only way to be sure that you aren’t being scammed by an opportunistic collection agency.

Credit Repair Fixes More than Your Credit

There are so many day-to-day necessities that are affected by credit, that it just doesn’t make sense to ignore the problem. While some people may be wary of credit repair companies in general, the best ones can help you not only repair your credit, but keep it that way in the future. For example, some credit repair companies:

• Keep track of any new negative items on your report. This lets you go to your creditors early to address the issue and nip any potential problems in the bud. With active accounts affecting your credit scores much more than very old debts, this can be an essential service.

• Provide specific information about state laws as well as federal laws. National Recoveries Inc. had to reimburse people for violating Minnesota’s state law, not federal law. Your state may provide even more protections than you realize (or may make you more vulnerable) and you need to know these facts before you try to negotiate with creditors.

• Can alert you to new open accounts and lines of credit. In this age of identity theft, you may need credit repair because your financial identity has been compromised. Knowing when new lines of credit are opened in your name helps you to stop further damage before it occurs.

Credit repair affects every aspect of your life, from how much you pay for insurance, to whether or not you can qualify for a better job. And with debt collection agencies working so hard to collect on purchased debt by any means necessary, professional credit repair may be the only way to stay ahead of their underhanded tactics.

Take the time now to look at your credit report and see for yourself if you need credit repair. Just because a debt collector sends you a notice in the mail or calls you on the phone, it doesn’t automatically mean that you owe that debt. Collection agencies make mistakes all the time – sometimes on purpose – and credit repair is your best defense against companies who are out for all they can get at your expense.

1. Talk to your creditors! Some creditors report the use of a debt relief company in such a way that it negatively impacts your credit score. Some creditors won’t work with a debt relief company at all. If you are looking to settle debt for pennies on the dollar, be aware that even if your creditor does accept such a proposal, settling a debt for significantly less than the amount owed will be a serious blemish with regards to your credit score, and will stay on your credit report for up to seven years.

2. Shop around. There are literally thousands of debt relief companies, with more springing up as the current economic downturn worsens. Some of these companies are little more than scammers, looking to take your money and provide little or nothing in return. So, when you’re looking for a debt relief company, take the time to evaluate several – don’t just choose the first one that seems promising.

3. Nonprofit may not mean reputable. Nonprofit debt relief firms may seem to be a safer option, but beware – in some cases, these nonprofit debt relief organizations funnel money to a for-profit companies, while providing you with little or no real benefit. A true nonprofit credit-counseling organization will help you to get concessions from your creditors such as a lower interest rate or waived late fees, and will provide solid advice on how to improve your situation.

4. Ask questions. When you are deciding on which debt relief company to use, make sure to ask questions regarding how the service works. Be certain your credit counselor spends at least 20-30 minutes evaluating your particular situation, and offers advice based upon that evaluation, rather than canned responses. Be wary of any promises that seem to be too good to be true, or that don’t take into account the reality of your situation.

5. Get it in writing. Make certain that your agreement with the debt relief company says the same thing on paper as you discussed over the phone – ask for clarification of any points that you do not understand, and make certain they discuss the impact that their service could have on your credit score.

6. Be wary of upfront fees. Most reputable debt relief companies won’t charge a large start-up fee in order to enroll you in their program. If it costs more than $50 to start, it may be a scam.

7. Check the BBB. No matter which company you decide to use, always check their standings with the Better Business Bureau – excessive complaints are a sure sign that the company may not have its clients’ best interests in mind.

Debt relief companies can seem like a good idea when you find yourself in over your head with creditors, but the truth of the matter is that these companies can often be risky investments at best. At worst, you could see your credit score plummet and interest rates increase due to late fees and other penalties imposed by your creditors. The best advice when dealing with debt relief companies is to do your research and be certain that the services the company offers are worth the potential consequences.