What Will My Credit Look Like After a Foreclosure?

If you are facing foreclosure, the first thing I would do if I were you is STOP reading this, CALL your mortgage company, and start trying to work things out. They are faced with so many defaults these days that they are often willing to work something out with you, like perhaps a lower interest rate, or deferred payments, or perhaps some other means. Honestly, they don’t want your house back. The market isn’t overly great right now, and houses are pretty hard to sell. If they get it back, they will have to go through a lot of hassle to sell it, and they will lose money on it anyway. Add in the legal costs of foreclosure, and you might have a good case to get a lower payment and keep the house. If you are financed through HUD, call a local office and ask for help. They WANT to help you stay in your home!

You’re still reading. Sorry to see that.

OK, so it happened. You are losing your home to foreclosure, or maybe you already lost it. It doesn’t matter why at this point, it just happened. Now you have to deal with a few things. The first thing is the fact that your foreclosure will show up on your credit report for the next 10 years. The second is that you are going to have a hard time getting a mortgage on another property for a while. And the third thing is you now have no place to live.

Let’s deal with the third thing first. You need to have a place to live. Of course, if things are really bad, you might be able to turn to friends or family for a while to be able to have a place to stay. That can help you recover for a while you get your finances in order. Another option is to rent, but there is a problem there: most companies that rent properties will not be interested in renting to a person that couldn’t handle their mortgage. My experience is that they will want at least 2 month’s rent held as a deposit, and they will probably charge you a steeper monthly rent. If you are like most people, if you had an extra 2 month’s rent, you probably would have been paying your mortgage!

Who can you rent from then? Well, a private owner may be willing to take a chance on you. Your local newspaper or a site like http://craigslist.com will have places for rent by owner as well as by corporations. An owner is less likely to run a rental history or credit check on you, as that costs them money and they might not know how to do a background check. However, they might also be less likely to fix things that are broken.

As far as a mortgage goes, it’s probably not going to happen. Unless you have a huge down payment and an income that makes Donald Trump jealous, you probably won’t get financing at this point. All is not lost, however. You can expect to be able to get a mortgage within a year or so. It may take a bit longer than that depending on the rest or your credit history, but if you start taking care of the rest of your credit and can show a consistent good payment history, it will help a lot.

And finally, what about your credit report. Well, two things are going to happen. First, the fact that you are going to mortgage means that you missed payments. So, you will have late payment notations that look something like this:

Late Payments (last 7 years):

30 Days Late: 2

60 Days Late: 4

90 Days Late: 4

You will get these notations on all three of your credit reports. Late payments are a big red flag to lenders, so this will hurt your credit scores. Worse, though, is this:

Remarks:

[TransUnion] Foreclosure redeemed

[Experian] Foreclosure proceeding started.

Credit grantor reclaimed collateral to settle defaulted mortgage.

[Equifax] Foreclosure

Real Estate Mortgage

This is from a tri-bureau report with a foreclosure on it.

A foreclosure is the second-worst bad item on your credit report. The only thing worse is a bankruptcy. So, be prepared for the fact that it will take some time to fix your credit after going through foreclosure proceedings.

Going through the loss of your home is horrible. If you have gone through it, I wish you well in recovering your situation. If not, and you read this anyway, try to work things out and avoid the problems that will plague your credit for the next 10 years.

How Will Divorce Affect My Credit?

When I got divorced, I never really thought about my credit scores. To that point, I had a perfect payment record, a mortgage, two car payments, a home improvement loan, and a couple of credit cards. Add in 3 kids and a dog, and it was kind of the all-American family. My credit scores were in the high 700’s the last time I had checked them for a mortgage re-finance, so all was in order. I was living the dream.

Then, like a ton of bricks, the bottom fell out. Those 4 little words, ‘I want a divorce’, changed it all. When that happened to me, I stopped really considering the financial aspects of my life, and started thinking about the interpersonal and relationship areas. I went to classes, learned basic communications, and basically got things in order. But still, I just didn’t pay much attention to my credit.

Over time, that oversight caught up with me. When I first moved into my own place while separated, I went out and bought a TV and stereo on credit. Then I decided a couch would be a good thing, and a few pots and pans. Did I pay with cash? Of course not, I used credit.

That first few months, during the initial separation, were fine. My ex and I agreed on money, and I had enough to live. Then she actually filed for divorce. When that happened, the judge, in his infinite wisdom, gave us some ‘temporary orders’ which gave me $1,137.00 per month to live on. That was roughly a sixth of my take home at the time (Remember the dot-com days? Ah, the pay rates! The Perks! The worthless stock!) I did some math. I paid $450.00 for my car each month, plus insurance. $140.00 for the stereo and TV. $60.00 for the household items. $60.00 for the couch. Add in a 60 mile commute each way from the only place I could find that was cheap enough to live, and my bills ran up to about $1970.00 per month if I didn’t eat. This, by the way, is NOT a good weight loss plan. So, I had an $800.00 deficit in cash flow. That is a fancy term which means I lived on credit. It grew over the next year to about $12,000.00 in credit debt.

Then, the divorce happened. No more temporary orders! I GOT HALF OF MY TAKE HOME!!!
Talk about living well. I could afford Ramen noodles, and twice a week I would splurge and buy some soft drinks. I was living well! OK, actually it wasn’t that bad. I managed my money well, still hadn’t missed a payment, and was paying down my debt.

Then, wonder of wonders, I lost my job. The company closed in 2003, and the market was horrible. I went under.

Now, I can’t blame that on the divorce, but my credit got trashed trying to recover from the living expenses I charged. I ended up not being able to pay the cards or department store charges, and got 5 negatives on my credit report. More damage was done, but the divorce, and the subsequent payment problems, left me in real credit problems.

I still haven’t told you how this can affect your credit yet. Let’s take a look at that now.

The credit cards I used while on temporary orders were joint with my ex. So when I stopped making payments, it affected HER credit. The car was in both names as well, so that was a hit to her. And she decided paying for her car should be my responsibility without letting me know that, so the payments slipped there as well. That hit both of us with late payments on our credit reports.

Eventually I filed bankruptcy, and was able to clear my bad items off of her report by claiming them as part of the divorce. My credit, however, was trashed. This was clearly my fault, but it did happen.

I can give you another example. A friend of mine, Sherry, got divorced 8 years ago. Her ex had just gotten a workman’s comp settlement, and they had enough money to pay off all their expenses as they parted ways. It should have been an easy thing to take care of, but her ex was dishonest. Instead of mailing all the payments, he cleaned out their account and disappeared. Since Sherry had made out all the checks, she assumed the debt was gone. After a couple of months, her phone started ringing, and she discovered that she was over $50,000.00 in debt. Her ex was nowhere to be found, and had even stopped making child support payments. If she had handled the payments herself, and gotten certified funds to cover payments, he could not have caused this damage to her credit and lifestyle. She ended up having to take care of all the debt by getting on payment schedules, and she is still paying part of it off.

As you well know if you are reading this, emotions run high during a divorce. There is a lot of blame, many ill feelings, and you probably don’t care much about finances outside of basic survival. However, the impact of a bad decision regarding credit is at least 7 years of a negative item on your credit report, and the possibility of collections, court appearances, and even bankruptcy.

Let’s take a look at some of the things you can do to protect your credit when a divorce happens:

1) Get your own credit cards. If each of you wants to keep cards from the current vendors, do so, but make sure they are in one name only. Joint cards need to be cancelled, and new cards issued. Most credit card companies will allow you to get a new card with the same balance as the old, but in only one name, unless the credit line requires both of your incomes.

2) Put it in writing. Make sure that the debts you have are all accounted for, and that each of you acknowledges in writing what his or her responsibilities are. If one of you defaults, this can be used by the other to protect their credit report and standing to some extent.

3) Get your own bank account. You have every right to do this. You don’t have to share an account. I got an account at the same bank at which I had a joint account with my ex, and I used the old joint account to transfer alimony and child support to her. She doesn’t need to see how I spend my money, and I don’t need to see her spending habits.

4) Build a budget. Things have changed, and you probably don’t have as much disposable income as you once did. Don’t make the mistake of continuing to spend the way you used to. Remember, you are responsible for your own actions, and if you overextend, you will still owe the money. Programs like Quicken or Microsoft Money are great for helping with this, but a piece of paper and pencil will work just fine.

5) Get educated. If you have been relying on the financial knowledge of your spouse, you need to figure things out for yourself.

6) Protect yourself. If you are making payments for your debt, make sure the payment can be tracked. If you don’t trust your ex to make payments, you take responsibility for making the payment yourself, and get the money from your ex to make the payment. Remember, a joint account is the responsibility of both of you to pay, so make sure it gets paid on time.

Nothing about divorce is pleasant, but with a little planning and forethought you can protect your financial standing. Of course, if while married you have ended up with bad credit, a divorce can be a great way to re-start. No matter where you stand, make sure you look after your own best interests. After your divorce is final, you won’t have that particular partner, but you will still have your credit scores and standing, and working toward protecting it now can do you a world of good later.

One final note: When I was going through my divorce, far and away the best thing I did was to go through the Rebuilding Seminars. To get more information, or for other resources, you should go to http://www.divorceseminarcenter.com/ and look for yourself. Many of my best friends were made in these seminars, and the opportunity to be with people who are going through the same thing is priceless.

5 Rules of Great Credit Scores

We all want nice things. New cars, a big house, a 52 inch flat screen TV (oh yeah!), new skis, that Harley your have had your eye on. These are all things that are wonderful to have, and which we seldom want to wait for. However, we usually don’t have the cash available to just run out and buy these things, so where do we turn? That’s right, we get credit.

For some purchases, credit makes a lot of sense. I personally don’t ever expect to be able to buy a car with cash, much less a house. For those things, credit will act as an extension of my earning ability. In other words, it stretches my cash position out over many years, so I can afford things that I would not otherwise be able to buy. But the difference in what you will have to pay over time is really amazing.

If you have a poor credit score, you will have higher interest rates. This may not seem like a big deal, but let’s take a look at what that means for just one purchase. Let’s say you want to buy a house. Your credit scores aren’t that great. You can qualify for the house, but you will get an 8% interest rate. Your will finance $200,000.00 on your house. You payment ends up being $1,467.53 per month for 30 years.

Now, let’s say your neighbor across the street has good credit and gets the same model house. They get a 6% interest rate on their house. Not much of a difference, right? Just a measly 2% interest. So what is the big deal?

Well, the big deal is that your neighbor will pay much less than you will. Their payment for the same $200,000.00 house would be $1,199.10. That’s right; they will pay $268.43 a month less than you will. Ouch!

Ok, you say, no big deal. That is a lot of money, but in the long run does it really matter? Well, the long run is where it gets you. You see, if you make those payments for a year at the higher rate, you will pay an extra $3,221.14 compared to your neighbor. That’s a lot. Over 7 years, which is about how long the average person stays in a home, you will pay an extra $22,547.96. That’s right, you pay more than $22,000.00 for having a 2% higher rate!

The question, then, is what can you do about it? The first thing you should know is it is never too late to start. You need to monitor and manage your credit to make sure that your scores go up, or at least that they don’t go down. To accomplish that, just follow a few easy rules:

Rule Number 1: Make Your Payments ON TIME!

OK, this sounds easy, but this is the one that gets most people. A single late payment, noted as a 30 day late on your credit report, can drop your scores as much as 60 points. That is enough to seriously impact your interest rates, or even your ability to get credit. If you can make your payments on time, and keep doing so for a number of months, you will begin to see your scores move up.

Rule Number 2: Don’t Go Over Your Limit!

This is a bad thing. If you go over your limit, your creditor will note that on your credit report. Going over your limit shows that you are not responsible with your credit. Creditors want to see you use credit responsibly, and going over your limit shows them that you don’t know how much you are spending. While this won’t hurt your scores as much as a late or missed payment, it still hurts.

Rule Number 3: Only Get Credit When You Need It!

There are three reasons for this, but one of the most important reasons not to go out and get a bunch of credit is that every time someone checks your credit you, they will do a hard pull. Each hard pull will get about a 5 point deduction. After about 6 months, you will get those points back, but if you have, say, 5 new checks against your credit report, you will take a 30 point hit for a while, which can affect your rate. There are other things to consider here, but too many pulls is generally considered a bad thing to a potential creditor.

Rule Number 4: Keep Your Account Balances Low!

Your scores can go WAY down with high balances on your cards. For instance, I had a 44 point reduction in scores by going to a 90% overall utilization across all my cards (it was, um, a test! Right, a test! To see what would happen. Really…). The rule of thumb is to keep your balances below 30 percent of your limit. So, if you have a $1000.00 limit, you need to keep your balances below $300.00 ($1,000.00 X 30% = $300.00). Again, it is all about ‘responsible use’. Creditors want to see that you don’t have to have credit, and instead use it for convenience or for those big purchases.

Rule Number 5: Check Your Credit Report!

Your really need to know when something changes on your credit reports. If you haven’t checked recently, you should probably go do it. You can get it for free right here: https://www.annualcreditreport.com. If someone has stolen your identity, or a collections firm has decided to come after you for something that isn’t yours, the only way you may find out about it is to pull your credit report. You can get on free yearly, or pay for one more frequently than that. You can get your reports and scores from http://www.myfico.com/.

The most import thing you can do to build and keep good scores is to make a plan and following it NOW! Good credit scores are vital in today’s economy, and it is up to you to make them the best they can be.

Does My Credit Score Affect My Insurance Rates?

You’ve been driving for years. You haven’t had an accident, or a ticket, or even been caught driving drunk. And now, suddenly, your rates go up.

Why? How can they do that?

Great question, but you won’t like the answer. The insurance industry adopted a policy of using insurance scores, which are derived from your credit reports, to determine how likely you are to file a claim. Apparently, a person with a good credit history is less likely to file a claim than is a person with a poor credit history. Insurance companies make their money by collecting your premiums, and never having to pay for anything. If they have to pay you, they make less money, so they look for ways to make sure that they don’t have to pay money out, or at least for ways to offset those payouts.

Because of this, you may be considered a ‘high-risk’ policy holder if your scores go down. You aren’t necessarily high-risk to yourself, or to other people. You are just a risk to the insurance company.

What, then, is the magic formula used to assess your insurability? That is really, really secret. They don’t want you to know what the magic formula is. You see, if you saw the formula, you might actually know their secret, so they aren’t going to tell you. I know, it makes no sense to me either.

You can, however, see your scores. You can get them from True Credit (http://www.truecredit.com/), which is a TransUnion service, from MyFICO.com (http://www.myfico.com/) or at ChoiceTrust (http://www.choicetrust.com/) who is a leader in insurance scoring. These scores aren’t free, as they aren’t regulated in the same way as credit scores, but they are available at a fairly low cost.

How can improve your scores? Well, pay your bills on time, don’t file bankruptcy, and generally follow the Rules Of Great Credit Scores. Remember, though, that other services will have information about you, such as medical services used, accidents you have had, and even your insurers own database. So while the scores you can buy can be used as a guide, remember that your insurance company may also decide to produce their own scores, and while they may rely on those scores, you will never see them.

How Debt Consolidation Companies Cost You A Fortune

You’ve heard the commercials: ‘Settle Your Debt For Pennies On the Dollar!’ ‘Credit Card Companies WANT to work with you!’ ‘Call American Debt Relief at’…

Right. Your credit card companies really want to work with you. They want to say “No, really, keep your money. We were being aggressive and rude. Please, don’t pay us a cent”. Did you sense the sarcasm here?

The truth is that creditors want to be paid. When they are faced with a choice between getting nothing and taking a lesser amount, they might bend, but they are going to do their best to make sure you feel some pain. In this case, pain is going to be felt in 3 ways: A reduced credit line or cancelled card; additional legal or collections fees; and a seriously bad mark on your credit report.

According to Fair Issaac, the company that provides credit scoring formulas to the major credit bureaus, any item that is settled may be shown as ‘Not paid as agreed’ or ‘Settled’ will have a serious hit on your credit scores. A single occurrence, such as one charged off card, is bad enough. You can lose 60 or more points from that one occurrence. Having several, though, is seriously bad for your credit. And that means your interest rates can go up, your insurance can go up, and you can be denied credit. These negatives will stay on your report for 7.5 years, although the scoring models start to discount the impact of a settlement after about 2 years.

But the noticeable cost of a ‘debt relief’ or ‘debt consolidation’ company is more real than just an interest rate increase. Like all businesses, they want to make money. And they have things set up so that they do exactly that.

Here’s how it works: The first thing you do is turn over all of your debt payments to the counseling company. They work out payment plans with your creditors, at a reduced interest rate, a reduced balance, or both. You send your money to the counseling company, and they make payments for you. Eventually, you are out of debt.

Simple, right? Well, not really. There are two primary ways consumer credit counseling firms make their money. The first way is through up-front fees. You have heard companies advertising that you have to have $10,000.00 in debt or more to qualify. Well, they are going to negotiate about a 50% reduction in your debt, mostly in interest, and then charge you between 10% and 40% of your debt load as a fee. So, taking $10,000.00 in debt as an example, let’s see how that pays out:

Debt: 10,000.00
Reduction in debt: 5,000.00 (50%)
Fees: 4,000.00 (40%)
Savings: 1,000.00 (Yikes!)

The second way they go after your money is by charging you a fee for each payment they make on your behalf. Again, that fee ranges between 10% and 40% OF YOUR PAYMENT AMOUNT! Think about it: You send in $100.00 in payment, and they keep 40 bucks. Only $60.00 of your payment reaches the creditors! You talk about high interest, this is the equivalent of paying 40% more than the interest rate you already have on the card itself. Personally, I don’t see the benefit here.

The long term effects are even worse. Let’s say, just for the sake of discussion, that you had 5 cards that you wanted to settle. Those 5 negatives on your credit report will be there for more than 7 YEARS!!! Just think about it: Your life improves, your income is better, you want to buy a house 4 years from now, and you can’t get a mortgage. Or, you get one, but pay 5 percent above market rate, costing yourself several hundred dollars a month in additional interest. Again, probably not the best solution you could come up with.

These debt consolidation companies have more ways of messing with your funds, your accounts, and your credit standing. If you really need help, look for an agency that is a member of the National Foundation for Credit Counseling (NFCC, http://www.nfcc.org/). Remember that radio and TV ads are expensive, and they are being paid for by your money when you sign up. Another resource is the Department of Justice at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm. You can also check with your local Credit Union. Many have free services for their members that include debt counseling at low or no cost.

You can do this yourself. You can negotiate with your creditors, getting a lower interest rate and making payments over time without a substantial penalty. You may get a ding on your credit report, but you can usually ask them for a goodwill removal when the payment plan is complete.

To sum it up, many debt relief companies are in business not to help you, but to help you part ways with your hard earned money. If you really need help, find a reputable firm. Or spend a little time and do it yourself. You’ll feel richer in the morning.

How To Build Your Credit

If you are looking at establishing a credit history, you have an interesting challenge ahead of you. There is this dilemma, you see, that creditors want you to have credit before they wilol give you any. Why do they want this, you ask? Well, it is pretty simple, really. Creditors want to know that you can use credit responsibly.

If you are a young adult, and are going to college, credit is pretty easy to get. You will be getting applications in your books, in handouts as you walk past other students, and in the mail. All you have to do is sign, and you get a card. The credit card companies know that, as an average student, if you get in trouble mom or dad will bail you out. So you are a pretty safe bet.
After college, however, or if you choose not to go, you suddenly have to prove yourself. They want to know how much you make. How much you spend. Your waist size. The name of your neighbors cat. Where you were on June 16th, 1963 (I know, you probably weren’t born yet). They want to know how worthy you are of having one of their cards.

Here’s the deal: They want to know you understand the responsible use of credit. They WANT you to use their card, because then they earn interest. They DON’T want you to pay your card off all the time, because then they make less money. (They still make money on every transaction by charging a store to let you use your card.) So, economically, they are looking for 3 things:

1) You will have the ability to keep making payments.
2) You are unlikely to stop paying them.
3) You understand that credit is a tool, and not a way of life.

The majority of people who default on a credit card have several cards, and they are all maxed out. They originally got those cards as a way to extend their purchasing power instead of as a mechanism to keep from carrying cash. So, having too many cards, or having them maxed out, can make you look less desirable to a credit card company.

There seem to be a few key utilization limits that the credit card companies look for. Utilization is pretty easy to calculate. As an example, if you have a $1000.00 credit limit, and you have charged $600.00, you have a 60% utilization rate (600 / 1000 = .6, or 60%).
Utilization percentage break points are at around 60%, 40%, 30% and 10%. Your ‘best’ appearance to a creditor is under the 10% level, but under 30% is also a really good mark. Higher than 60% utilization is a key indicator that you aren’t managing you debt well.
Another thing they look for is if your debt is all in one card, with the rest at low balances. Creditors prefer to have your debt spread out across multiple cards rather than a single large amount. If you have taken advantage of a consolidation offer, prepare to have a lower credit score for a while.

Another thing to consider is how many cards you should get. Credit companies call having too many cards debt pyramiding, which is a condition in which you have so much credit if you maxed all the cards out you couldn’t pay them all off.

Let’s sum this up:

1) Keep low utilization amounts on all of your cards, preferably below 10% per card.
2) Spread debt across several cards, rather than running up a large amount on a single card.
3) Don’t get too many credit cards, as you will look like a bigger risk.

Regardless of your current situation, you have to have credit to build credit. So, consider taking out charge cards from retailers, or a secured card from a bank if you are having trouble getting credit.

Store cards, such as JC Penney, Macy’s and Target, are typically very expensive in terms of the interest rates. However, Target in particular has a reputation for giving people a chance to build credit. Their standard procedure seems to be to give a new customer a $200.00 limit, and then up the credit limit to $500.00 after 90 days.

Can’t get a store card? Go secured. For a secured card, you will give your bank a certain amount of money, say $500.00. They deposit that money into an account, and give you a credit card that is secured by that account. You can’t spend more than the $500.00, and the payments will come out automatically.

As your credit improves, a mix of credit can be helpful. You may want to look at a car loan, or a mortgage, to give you a nice rounded credit portfolio. Creditors like to see this instead of just a bunch of credit cards. Again, it is a responsible use of credit thing.

Remember, though, that taking on too much debt is dangerous to your financial health. No matter how tempting that cool new widget is, make sure you can afford the payments, especially if something like the loss of a job happens to you.

How Long Can Debt Collectors Come After Me?

When you default on a debt, your creditor has several options. They can try to get you to pay, they can sell the debt to a collection firm, or they can just write it off. Of course, they also have the option of suing you for the defaulted amount plus additional fees. But, how long can they, or the collection agency who collects on your debt, go after you for the money?

Collection agencies like new debt. If they can get debt that was defaulted on within the last 180 days, they will have a very high probability of contacting you for payment. When they buy the debt, they get the most recent phone numbers, address, your social security number, and any other information the lender feels is important. They may even get original signatures or paperwork showing that you agreed to the terms of service and are legally liable for the debt.
When the collector gets a hold of your file, they start pursuing it immediately. You will get letters, phone calls, and a nagging suspicion that every time your phone rings, it will be someone wanting the contents of your wallet. The fresher the debt, the harder they work, because they know where to find you.

After a period of time, generally 9 months to a year, the debt starts to be come known as ‘stale’. This debt is much harder to collect on. Someone who has defaulted on a loan or credit card probably has defaulted on others, and may have faced eviction or has moved to try to find work. Their phone numbers probably don’t work, the address is invalid, and the debt collector has to work harder to find them (see CC2: How Debt Collectors Find You). This debt, when purchased, has a much lower return than does fresh debt. Because of that, it is substantially less expensive than fresh debt for a collection agency to buy.

Older still is out-of-statute debt. From a legal standpoint, each state has rules about how long a person can be sued by a collection agency to try to collect debt. When the debt passes a certain number of months or years after the initial default, the collector can no longer sue you for it. That is why they often sue in the few months before debt goes out-of-statute. Once the suit is filed, it won’t matter how long you wait. There is no time limit after filing. Before filing, however, they have limited time.

Out-of-statute debt is very hard to collect on. However, since it is so cheap, it takes very few collected dollars for a collection agency to make a profit. They may, depending on your initial contract, also be able to try to collect on interest at the default rate. So it takes very few payments to make these folks feel wealthy. Since the time period varies for this debt, you should be familiar with your state’s laws regarding collections. Texas is among the most favorable to the debtor at 2 years, and Ohio is one of the strictest at 15 years.
The bottom line, however, is that there is no time limit for them to try to collect. There is a time limit for suing you, but they can call you forever.

One final note about this subject: If you respond to a collection agency by making a payment or by writing a letter, the clock starts ticking again for out-of-statute collections. At that point, they can sue you again, as long as the original time period for out-of-statute has not elapsed. And if you want the calls to stop, you need to learn your rights under the Fair Debt Collections Practices Act (FDCPA).

How Does A Debt Collector Find Me?

Debt collectors are a smart group of people. They know if they want to find you so they can collect from you, they are going to need to get creative.
You see, the average debtor is a fairly mobile person. They open an account, and when they move they never send a new address to their creditor. So, the creditor has an old address, phone number, and other information.

Trust me, this doesn’t even slow a collector down! They will be hot on the trail of a debtor just as soon as they buy the debt. And they have a bunch of tools at their disposal. Unlike a few years ago when the collector only had information from the original creditor and perhaps a credit report, they now have a huge amount of information at their fingertips through the modern marvel, the Internet.

While a collection agency has many ways to track you down, here are a few that work really well for them:

1) Public records – It’s true, they can see what you do. If you buy a house, or file taxes, or open a business, they will know of it quickly. A typical collections agency will do a monthly sweep of all accounts through a computer process, and will see what data is available during that sweep. If, as an example, you buy a new house, they will see that and have your new address. Bingo, they got you! Interestingly, even 1099 information for a business is online, so that can be checked to see if you own a business. There are many other pieces of information they can check, but this is a great starting point for them.

2) Lexis / Nexis – Lexis, and other firms, provide information about pretty much everyone to you if you can pay for it. They have current and previous addresses, phones, job information, family information, and probably even your blood type. A few years from now they will probably keep a piece of your DNA! Collectors pay less than $30.00 per month for unlimited service, and they do take advantage of the service whenever they can. A lot of information comes back in a very short amount of time, and they can find you quickly.

3) Skip Tracing – This refers to hiring an outside vendor to find information about a debtor. A skip tracer will do all the leg work for you, and come back with a summary report telling you where a debtor is. If the first skip tracing firm is unsuccessful, they may use another to search again. This is highly cost effective, and highly automated.

4) Calling people you know – This is vicious, but it really works. Lexis, and other vendors, have a list that they call “nearby’s”. Let’s say you had a house at 123 Elm. They know who lives in 122 Elm, 124 Elm, and other surrounding houses. They have the names and phone numbers for each of those homes. So, the collector will call, and try to get a forwarding address, or a new phone number, or any other information they can get. They will also call relatives, friends, and anyone else that is shown to be an associate of the debtor.

5)) TransUnion – A fairly new TransUnion service will allow you set a watch on a credit file, and if a new entry comes in, say from a new credit card company with whom the debtor has opened the account, TransUnion will determine the address for the account and send it to the collectors. This is a great way to track people down, but may have some legal privacy flaws before everything works out.

This is just a few of the ways collectors can find you. They have a bunch of additional tricks up their sleeves, and more than likely they WILL find you. So, how do you hide? You can’t, unless you can find a way to hide your personal information from every source on the Internet. Instead, you just have to be prepared for the worst, and make sure you can deal with the collectors if they finally do call.

Why Collectors Are Buying Old Debt

It’s happening a lot now. An account you had forgotten about, from a different time in your life, suddenly shows up again as a Dunning Letter from a collection agency. You vaguely remember the address, and you are pretty sure you paid that off, but that was 15 years ago! It was your debt, but you don’t have records that far back. Why are they bugging you now?

The game has changed. There is old debt out there worth tens of billions of dollars that was believed to be un-collectable. In other words, the utility company didn’t know how to find you, so they never pursued the debt. This debt is very cheap to buy, and the fact is that a very small number of collections against it can generate large rewards for the collection agency, so they are willing to put in the time and effort to try to get a bbit of cash out of you.

Some collectors are unscrupulous (comes as a surprise, doesn’t it?), and don’t care who they collect from. They might add a negative to someone’s credit report even if they can’t verify the owner of the account. In that case, they are hoping the innocent victim will pay for a deletion of the account rather than take the time to fight it. In many cases, this is the cheapest way to go.
But again, why bother? Well, the original creditor wrote the debt off years ago. Now they see a way to make some cash back. So, they cell their debt for 3 or 4 cents on the dollar. Look at the benefit to the collector. They buy a million dollars worth of debt for, say, $40,000.00. Over a period of a month, they are able to bring in 10 percent, or a hundred thousand dollars. They make HUGE profits on a very few wins.

So, how do they prove the debt is yours? Well if the original creditor has a paper trail showing this is your debt (usually by a matching SSN), you are stuck. But often, they have no paper that proves the debt is yours. So, you can contest it, they can’t prove it, and by law they have to delete it from your credit report.

However, they often don’t delete it. They will change something, like the date reported, or the amount, but won’t delete the negative. And unless you act, they will have 7 years (in most states) that the debt will show up on your report.

What can you do? If this happens to you, the first thing to do is send a letter demanding proof. Not that they verify the debt, but that they prove it is yours. If they can’t prove it, you have a case against them.

The second thing is to call the original creditor and explain the situation. They may have simply made a mistake, and might be able to help you out.

Your next step is to dispute with a credit bureau. If you do that, the bureau has 30 days by law to respond, and if they get no proof they have to delete the data from their credit reports.

The point is, you need to do something. Check your reports, and take action against the bad. If you do that, your reports will improve, and you will save money over the long run.