There is obviously a need for these businesses, based on our system of supply and demand; just look at how many are in your town or neighborhood.  And they do serve a purpose in some circumstances.  Critics protest the extremely high interest rates and the predatory nature of some of these companies.  The debate will continue and everyone has an opinion.

However, we’re here to talk about credit.  What do pay day loans have to do with getting better credit scores?  Well, we review thousands of consumer credit reports and see many different types of accounts on those reports.  And we’ve seen cash advance loans have a negative impact on credit scores.  Not directly, but through collection accounts. 

Remember, companies have to pay the credit bureaus to report your information on your credit report.  And pay day loan companies don’t do that.  However, when a consumer does not pay back the cash advance, it usually gets sold to a collection agency.  And many collection agencies DO report to at least one of the credit bureaus, if not all three.

If one collection agency isn’t successful in getting paid for the account, they sell it to another agency.  This can happen several times over a period of years, having a detrimental impact on credit scores.  We’ve seen credit reports with multiple collection accounts for five or six different cash advance companies.  It can be devastating to a person’s credit rating and their confidence for their financial future.

If you are considering a cash advance, know the facts.  Educate yourself on these types of businesses. PayDay Loan Consumer Information and the FTC both have good information and reference material for consumers.  

Check your credit reports.  If there are collection accounts listed with an outstanding balance on items you have already paid, dispute it with the credit bureaus and request that it be corrected.  You may need to send a copy of the receipt showing you paid the loan off.  Always get something in writing when you pay a bill.  A cancelled check, statement showing zero balance or a register receipt can all be helpful when trying to correct your credit reports. 

Most people don’t realize that their financial actions NOW have a tremendous impact on their financial future.  Learn about your credit, be proactive with your personal finances and carefully consider all debt obligations before you sign on the bottom line.

WHAT IS A CHARGE OFF?
When an account has not been paid for a period of time, the company can determine that it is uncollectible and writes it off as “bad debt”.  This falls under standard accounting practices and usually happens when the account has been delinquent for a period of six successive months.  It is sometimes reported on the credit report as “Profit and Loss” or “Charged off to P & L”  which come from common accounting terms.

A Charge Off is a negative event to the scoring formula and usually has a severe impact on credit scores.  Additionally, the late payments attached to the Charge Off often have a significant impact on credit as Payment History is the number one factor in scores.

HOW IT’S REPORTED
Typically, there will be several late payments listed on the credit report with an account that has been charged-off.  There will be five or six months’ worth, getting progressively more delinquent as the time goes by: a 30 day late, then a 60 day late, then a 90 day late, etc. 

NOTE: The company can report late payments after the charge off because the unpaid account is technically overdue.

There is usually a money balance due on the account and it can continue to grow each month if the company charges late fees and overlimit fees.  Often a Past Due Balance is reported along with the regular account balance.  A Past Due Balance is an additional negative item counted against the scores.

TO COLLECTIONS
After a period of time, a company may sell the account to a collection agency.  If the collection agency chooses to pay the credit bureaus as a monthly subscriber, they can then report the account on the credit report, too.  The Date Opened should be when it went to collections.  The Date of Last Delinquency should be the last late payment date that the original creditor/company reported. 

HOW LONG IT STAYS ON CREDIT REPORTS
According to the Fair Credit Reporting Act (FCRA), the charge off and its related late payments can stay on for seven years plus six months from the date of first delinquency that led to the charge off.  So if the first missed payment was in January and no payments were made ever again, each month would have a subsequent late payment with the charge off status likely reported in June (six months later).  January of that year would be when the 7 1/2 year reporting period starts because it was the first delinquency in the succession that led to the charge off.

NOTE: Any late payments on the account in earlier years, NOT in succession to the charge off, should be removed 7 years after the date it occured.

COMMON ERRORS
When the charged off account is transferred to collections, the account balance should only show up on ONE account, the most recent one.  If both the original company AND the collection agency are reporting a balance on the credit report, that’s an error.  It can only be listed on the most recent account, in this case – the collection agency. 

After a period of unsuccessful collection attempts, one collection agency may sell it to a different collection agency.  Again, only ONE of them can report the balance on the credit report.  Sometimes we see the same account listed by four or five different collection agencies on one credit report.  If all of them are still showing a balance due, all but the most recent owner of the account are reporting inaccurately.

NOTE: The Statute of Limitations on credit reporting is NOT the same as the Statute of Limitations on debt collection, which varies from state to state.

Late payments should not continue to accumulate on the original account after it has been transferred to the collection agency.  It is no longer their account, it is no longer overdue to them.  NO late payments on original account after it goes to collections.

Collection accounts reporting AFTER the 7 1/2 year reporting limit is a common error on credit reports.  Often the collection agency dates listed under Date Account Opened are much more recent than the delinquencies on the original account that the collection is for.  When the collection agency does not list the Date of Last Delinquency OR changes it to a more recent date, the account looks much newer than it is and stays on credit reports longer.

NOTE: If there is a collection account on the credit report for Sears and there is not an original account reported by Sears anywhere on the report, chances are the collection is past the reporting time limits.  When the original account can no longer be reported, it usually means the related collection accounts can’t be reported either.

FINAL THOUGHTS
A Charge Off is a negative item, but it does not mean your credit rating won’t recover.  Minimizing the negative impact by assuring it is reporting accurately is something you CAN do to help your Financial Fitness. 

WHO
If you are a cable subscriber using any of the cable company’s boxes, print and keep this article for future reference.

WHEN
When you cancel the cable service, because you are moving or switching, they usually require you to return their equipment.  Don’t leave it in the home or apartment.  Don’t leave it with the landlord or a family member to turn in later.  Turn it in as close to the last day of service as possible.

WHERE
Go to the cable company’s office to turn in the box and any other equipment.  Take a copy of your statement and account number with you to assure proper credit to your account.

WHAT
Get a receipt for the box.  Something in writing on their letterhead showing the date, your name and account number, the make, model number and/or serial number for the equipment you are returning, and an employee’s or manager’s signature. 

If you are also giving them money for your final bill, get a written receipt showing all of the same information listed above, PLUS the words “paid in full, zero balance due”.  Keep these receipts in a secure place at home or in a box with important papers during the move.

HOW THIS HELPS
In the event that an error occurs and the cable company does not properly credit your account with the returned equipment, you might find a collection account on your credit report a few months or years down the road. 
NOTE: By monitoring your credit three times a year as we recommend, it is unlikely to go undiscovered on your credit reports for a few years.

You can mail a dispute letter to the collection agency reporting the account on your report.  Their name and address should be on your credit report.  Be sure to use the collection account number from your report and send a copy of the receipt showing the cable box return, telling them that you do not agree with this alleged bill and owe them nothing.  Request that this inaccurate account be removed from your credit file.  Per the Fair Credit Reporting Act (FCRA), they must respond to your letter within 30 days of receiving it.  Mark your calendar for 35 days from the day you send it. 

Their reply should show that you do not owe the money and may even state that they are contacting the credit bureaus to have it removed.  Make three copies of their letter and send one to each of the three credit bureaus with your letter disputing the collection account and requesting that it be removed from your file.  Be sure to send each bureau a copy of the original receipt for turning in the cable box, too. 

If the collection agency does not reply by the 35th day you marked on your calendar, that indicates that the account cannot be validated and should be removed from your credit reports.  Send each of the three credit bureaus a copy of the original receipt and the collection agency letter telling them that this account is not accurate and was not verified by the company reporting it, therefore it must be removed from your credit report.

Mark your calendar again for another 35 days from the time you mail these letters as the credit bureaus are required by law to respond to your dispute within 30 days after receiving your letter.  If they do not reply, they are in violation of your consumer rights under the FCRA and you can file a complaint with them and the Federal Trade Commission.

By taking a few minutes to get a written receipt for turning in your cable box, you can save yourself countless hours of time and frustration later, in addition to the money saved by not having to pay for something you already took care of but have no proof.  Plus, the lower interest rates you can get with higher credit scores will put more money your pocket, too.