Dealing with Debts from the Distant Past

The present credit crunch has many people scrambling to dust off their credit reports and ensure all their financial ducks are in a row. When trying to refinance or get an entirely new mortgage, every minute detail on a credit report can mean the difference in wasting- or saving- thousands of dollars over the life of the loan.

One of the most frequent complaints of American consumers with credit issues centers around unknown debts that mysteriously appear on a report from the credit bureau with an unrealistically recent date. These debts are often from vaguely named organizations, such as PCS or Revrec, with no apparent connection to any known current creditors.

In most cases, these phantom companies are actually collection agencies who mask their identities behind ambiguous acronyms or abbreviations when making damaging- and often illegal- negative credit reports. Some of these names are easy to discern: RevRec, for example, is simply a shortened form of Revenue Recovery, a collections agency based in Knoxville, Tennessee. Others, such as the "PCS" used by Professional Collection Services of Orlando, Florida, are frustratingly difficult to even identify, much less dispute.

Why would these companies go to such lengths to mask their identities? Often, they do so in hopes of operating somewhere below the radar, as they operate outside legal boundaries in an attempt to collect payment and produce profits. By far, the most common of these abuses is a process called "re-aging," or changing the date of a debt to keep it on your credit report for many, many years.

Re-aging happens when your account is charged off by your original creditor and sold to a collection agency. The debt collector considers your debt a "new" account and reports it to the credit bureau as such. After attempting to collect from you- some are relentless while others try only a few times before giving up- they charge off your account and sell it to another collector as a bad debt. Each time the debt is sold, the process is repeated and your credit score is driven further into the red.

Does this process sound devious? It is, and it is also illegal. The United States federal Fair Credit Reporting Act (FCRA) specifically states in section 605(C)(1) that the debt may be collected and reported starting six months (180) days from "the date of the commencement of the delinquency which immediately preceded the collection activity." In more common language, a creditor may report your delinquency to the credit bureau as up to six months (180 days) from the first date you didn't pay your bill. For example, if you stopped paying on your credit card on January 1, 2005, your credit report could show a collection or charge-off action on July 1, 2005, but not later.

Obviously, the collection agency practice of "re-aging" debts violates this federal directive. What can you do, though, if you have been a victim of this type of fraud?

First and foremost, file an immediate dispute with the credit bureau. The major credit bureaus, Equifax, TransUnion and Experian, take fraud very seriously and investigate each and every complaint. If the creditor- the collection agency- fails to respond to the credit bureau request for proof of the debt's legality, the debt must be removed from your credit report. If the agency does respond but fails to provide proper proof that the debt is valid, it must be removed from your credit report. Further, if the credit bureau fails to investigate your complaint within a reasonable amount of time, the entry must be removed from your credit report. If the debt has, in fact, been re-aged by the collection agency, the credit bureau will recognize this fraudulent activity and remove the entry from your credit file.

Credit bureau disputes may take months to complete, however, as the creditor is allowed 30 days to respond to the credit bureau inquiry under federal law. If you are on a tight schedule and need to push your refinance through quickly, for example, you may be able to contact the creditor for proof of the debt. Upon receipt of a written request for verification of debt, the creditor- or the collection agency- is required to provide all relevant information concerning the debt. Be sure to specifically request the original delinquency date, as this date is the one that will be used by your mortgage company to determine your credit risk. A good mortgage broker will be able to use this verification to alleviate the mark against your credit with the underwriter of the loan.

In extreme cases, you may be entitled to compensation from the collection agency who made the fraudulent report. The Fair Credit Reporting Act sets a limit of $1,000 which victims of re-aged accounts may collect, though some state laws may set lower limits. If you have been a victim of re-aged accounts or other underhanded- and illegal- debt collection practices, you may consider consulting an attorney to evaluate whether financial penalties may be levied against the creditor.