What Should I Do If a Collections Agency Calls About Old Debt?

What Should I Do If a Collections Agency Calls About Old Debt?

Your Credit Minute Show Notes:

 

  • 00:00                                   What’s up guys. This is Nick Suggali with Credit News Daily.
  • 00:03                                   Great question of the day today. What should I do if a collection agency calls about an old debt? This is a simple answer. Do not engage. Do not engage. Don’t have a conversation. Don’t fight. Don’t do this back-and-forth. Do nothing, okay.
  • 00:22                                   Listen, if it’s a legitimate collection agency and they’re reaching out to you, they should be able to do it in writing. And when they do something in writing, you can reply in writing. And what happens, you have a paper trail, okay.
  • 00:32                                   You’re unsure if that debt is past the statutes of limitations? You’re unsure if the collection agency can verify the debt? You want to put them through the pressure of validating everything via the Fair D- Debt Collections Practices Act? Guess what? You can’t do that over the phone, you can only do that in writing.
  • 00:47                                   So my suggestion? If you do get on the phone by mistake with them, simply say this, “Hey Mr. Debt Collector, um, I don’t know who you are, I’m not validating everything. If you need to tell me anything, please send it in writing. [inaudible 00:01:01] have my address.” Click.
  • 01:03                                   Literally, click, okay? If they don’t have that information, they’re not legitimate, okay? Do not engage, do not verify anything. Um, one of the scams of a debt collection agency is they’ll call you and they’ll pressure you to make a five dollar payment towards a debt. Otherwise, they will send you to jail.
  • 01:20                                   Number one, they can’t send you to jail, and if you do send them five dollars in over the phone, guess what? You have re-initiated or restarted the statues of limitations. You’ve got another seven years of misery with that debt collection agency.
  • 01:32                                   Also, check some of our previous vlogs, okay? We have a reference point that shows you your state by state statutes of limitations, which shows you when each of these debts could possibly expire in the state that you live in. Okay?
  • 01:44                                   Also, even if a debt is within the statutes of limitations, what’s to say the debt collector can validate it, okay? Um, have you ever heard of something called the Fair Debt Collections Practices Act, probably haven’t. It’s pretty boring stuff. It’s on our website under the tab, “Credit Laws.” I would suggest reading through it or contact us to help you or assist you with this topic, okay?
  • 02:04                                   Ah, FDCPA, what it’s basically telling you is, “Hey, Mr. Debt Collector, you want money from a- a- um- ah, from a consumer? You need to be able to validate the debt. Show me um, your ability to buy debt my state. Show your license, your licensing to collect on debt in my state. Okay? Um, show me when the contract was signed, okay? Show me a copy of the contract. Show me copies of statements. Show me the bills. Show me proof of the date of last activity. If you have in fact, reported it to the credit agencies, okay?”
  • 02:37                                   Um, you know, validate that the statutes of limitation hasn’t in fact expired. Okay? So these are things you can ask for from these companies. But you should never, ever, ever engage over the phone. This is something you want to ask for via a letter, something you put in writing, something that should be sent to the debt collector. That way, you have your paper trail, you have everything dated, you can view registered letters if you don’t have a PO Box, so you know who’s signing for it.
  • 03:04                                   Um, but again, let’s get off the phone, guys. This is Nick Suggali with Credit News Daily, thank you for this amazing question. Let’s see where this one came out of. This one is out of let’s see here, we have Astoria, Queens, New York. All right guys, thank you so much. Have a great day.
How are medical bills treated when applying for credit?

How are medical bills treated when applying for credit?

Your Credit Minute Show Notes:

 

  • 00:00                                   Hey what’s up guys? I’ve got a great question today out of Detroit, Michigan. How does, or how are, medical bills treated when applying for credit?
  • 00:10                                   So let’s give you the example of buying a home, okay? Um, you saved up some money for a down payment, you walk into the bank, you want to apply for a, a home loan, but you have some medical bills outstanding, okay? Your typical medical bill, okay? Really shouldn’t report on the credit report. Just keep that in mind. You can, you can owe a million bucks for all we know, okay? As long as it’s not on the credit report, a mortgage lender isn’t going to see it, okay?

 

  • 00:33                                   If it is on the credit report and it is in collections, and that’s really the only way to report to the credit agencies is in collections, that would adversely effect your credit score, pretty much change your credit score, okay? Um, and even if you’re in a repayment plan, until you’re really fully out of collections by paying off the debt, the credit score is going to suffer in a big, big way.
  • 00:54                                   Just to put things into perspective, the number one reason that we get a phone call for credit repair, is somebody that’s incurred a ton of medical debt, okay? The debt has gone past due, let’s say 90 days, 120, even 180 days or six months. And then that, uh, that debt was then referred to a debt collector and that debt collector placed it on the credit report.
  • 01:15                                   Um, let’s elaborate a little bit on medical debt, I just want to answer a question you’re probably thinking of right now which is, I thought medical debt couldn’t report to my credit report. Absolutely, it can.
  • 01:26                                   What they cannot do is report the physicians name on the credit report, okay? They do not want to breach patient privacy on either side, patient or surgeon. So what they will typically do is, either report the medical collection as a simple generic term like medical collection, and that’s it. And then the uh, phone number and address of a, a uh, of the company that’s doing the bill collecting for the hospital. But they usually will almost never ever report uh, the name of the hospital, the doctor’s office, the pediatrician, the dental office. They’ll always use a generic term and that’s how they get around violating the HIPAA laws or patient privacy laws, okay?
  • 02:05                                   So just to recap guys, how will medical bills affect uh, my ability to access credit? Out of Detroit, Michigan. Again, simple stuff, unless it’s in collections, it won’t. Um, usually you’re going to wait at least 120 days before it hits collection status. So if you just got the bill, don’t stress about it, reach out to that doctor’s office, or their medical billing company, whatever they’re using to manage that aspect of it. And if you can’t afford to pay it off in one chunk, immediately get into a repayment plan. And that could easily avoid any sort of collection status.
  • 02:36                                   Guy, this is Nik Tsoukales from Credit News Daily, thanks for tuning in today. You have a great day.

 

How does co-signing affect my credit?

Your Credit Minute Show Notes:

 

  • 00:00                                   Guys, awesome credit question coming out of the Detroit, Michigan, today. We have, “How does cosigning hurt my credit score?” Okay. Probably the second biggest reason we get a phone call, aside from medical collections, is cosigning gone all wrong. Okay, let’s talk about what cosigning is, or co-guaran-, co-guaranteeing a loan, okay? Uh, you’re on it with them, okay? So, you could get called by a friend, and they say, “Just come and cosign for this car loan with me. I’m down at the dealership,” or, “Cosign for this mortgage,” or, “Cosign for a credit card.” It doesn’t matter. “Apply with me. Help we out this loan. I just need a signature, here.”
  • 00:39                                   Well, why would the bank just want a signature? They don’t just want your signature. They want a guarantee, okay? The way they … way more secure is by putting a … on the hook. So, first [inaudible 00:00:54] approve for it, okay? So, they say, “Bring on somebody that can sign with good credit,” and you get that phone call. Now, keep in mind, that item is gonna report to all three bureaus in the exact same way that it’s gonna report to the, uh, the primary borrow. If you cosign for your friends car loan, you’re getting that item the exact same way on your credit report, um, as a loan, as a- as a debt, okay?
  • 01:20                                   If you go to apply for something, you go to apply for your own home loan, and that liability is on there each month. Let’s say it’s a car loan and it’s $500. That $500 is gonna affect your income to debt ratio as well. Most banks and lenders, even if you tell them you’re paying it, they’re still gonna factor it into your income to debt ratio. Or, actually, let’s say you say, “My friend is paying it.” They’re still gonna factor it into your income to debt ratio. And, the reason for that is, they’re not sure if your friend’s gonna pay it. They don’t know who they are, so they’re gonna say, “Well, if you signed for it, you’re guaranteeing it, we’re factoring it into your income to debt ratio as well, which is gonna affect the amount you can borrow.”
  • 01:57                                   Now, that’s scenario one. That’s the biggest reason not to cosign, okay? But, there’s another big reason, and the other reason is, there’s no control. There’s zero control. Let’s say you cosign for your friends car loan, okay, and they default on that loan. What happens? Immediately you’re gonna get that late payment. They go into repossession status, you’re getting a repo on your credit. They send you to collections, that debt collector’s coming after you. That item becomes a judgment, because of your friend’s inability to pay. That judgment is coming to your credit report, okay? That’s gonna affect your ability to get approved for anything, and that’s a real big problem, okay?
  • 02:34                                   So, if you want to help out a friend, give them some money. Give them a ride, call them an Uber. There’s no reason you should be cosigning for them, because you’re getting on the hook for many, many years to come, and just like anything, you’re losing that control, and that control is everything. You work very, very hard to reestablish your credit, to build it up to a point where you can get started, or get started with approvals, um, and you don’t want to risk it, uh, for a friend. Help your friends, but in a different way. Thanks [inaudible 00:03:02]. Have an amazing day.

 

 

How Does Closing a Card Affect My Credit?

Your Credit Minute Show Notes:

  • 00:00                      Nik Tsoukales with your credit question of the day. We have, “How does closing a credit card affect my credit score?” So let’s break this down to a science. So, we’re going to uh, you’re going to see here we have the five factors that make up your FICO score. Or, we call them the FICO five, okay? So let’s break down how closing your credit card could or could not affect your credit score, and let’s go into the specific scenarios.
  • 00:23                                   So, let’s say for example, uh, you only have one credit card, and you close it out, okay? What’s typically going to happen is your going to see a massive credit score drop, believe it or not. And the reason for that is, number 130, percent of your credit score is based on debt. Specifically your credit card utilization rate. So, if you cut off all credit cards, um, really you’re not getting any of the points in that specific category, so you’re going to see a drop here. Okay? Um, also, 10% of your credit score is a mix of different types of accounts, okay? So all of a sudden, you don’t have what they call a revolving account. You’re going to see a drop here as well, okay?
  • 01:01                                   The other place you could see a drop is the age, okay? So let’s say the average age or length of history of all of your active accounts um, let’s say that account has some good age on it, or it’s been pretty old, it’s 10 years old, and you, and you, and you, uh, uh, deactivate that card, you’re going to see a drop here, so yes, um, shutting down credit cards could have a pretty big adverse affect uh, or pretty large drop in your credit score, and it can happen very quickly. So, I’d advocate you know, don’t carry balances, don’t carry the credit cards, but it doesn’t mean you need to shut them down. Now, if you think the temptation is too hard to resist, I would suggest taking that credit card, locking it up in a safe. Maybe putting it in a safety deposit account.
  • 01:47                                   If you have it only for the purpose of credit, um, maybe what you want to do, and I’ve advocated this before, is put it in a red cup, fill up the cup with water, stick it in your freezer. Sounds a little insane, why do I say that? For the obvious reasons, okay? You’re not going to make a compulsive decision to buy something, because that credit card is locked up in the freezer, okay? And if you do find something you really, really want, and you want to buy it, your going to have to melt the water. You’re going to have to melt the ice, and you are going to feel absolutely foolish and then going through those emotions, you might actually think twice about your next compulsive decision, okay? So another quick tip in terms of how to keep a credit card without having to use it.
  • 02:27                                   Um, now, let’s say you have a bunch of credit cards. Okay? Let’s say you have five credit cards, and they’re all fairly the same age, okay? And you really just don’t like this credit card, it’s a garbage annual fee. Maybe it’s the type of credit card you got when you first established your credit, and the annual fee really stinks, and the rates stink, and there’s just no purpose behind, and the service stinks, and you already have a bunch of really uh, good credit cards, where you’re getting the points, the rates are super low, you have a decent credit limit, so the utilization rate doesn’t get all wacky when you use it.
  • 02:58                                   That’s one of those scenarios where closing out one of those types of credit cards, you’ll probably see zero adverse affect, really. Because at that point, your utilization rate hasn’t been affected, okay, hasn’t been affected. Um, the age, by the way, this doesn’t mean your age, okay? The age of the accounts. Um, this really hasn’t been affective, because you have other really good healthy aged accounts. The types of credit in use, or credit mix, that’s not really affected either. Okay? So keep that in mind. Um, also payment history … Something else to keep in mind.
  • 03:32                                   Um, 35% of the score is payment history, um, so keep in mind, as long as you have other accounts reporting each month on-time payments, you are going to pretty much maximize this part of your credit score. Um, but if you don’t have enough accounts, you could see an adverse drop in your credit score, scenario one, by closing another credit card, because you could lose some points here, just because you have less accounts reporting an on-time payment. Um, 35% of your score, okay?
  • 03:58                                   So, you know, remember building credit, okay? We advocate opening up new accounts. Not going into debt, okay? Paying um, or using the card um, obviously you’re required to make a payment, but let’s say you haven’t used the card, and it’s a zero balance, by default you still get an on-time payment, okay? So we talk about that in the building process. We don’t need to go into debt to build up our credit report. Well, think of that in reverse. If you got 50 points from building up your credit scores, and use … Or building up those healthy accounts, and you start doing the opposite, just imagine those 50 points pretty much going away, if that’s all you have on the credit report.
  • 04:37                                   Guys, this is your credit minute. If you have more questions about whether or not you should close on an account, that’s definitely a phone call you should make to us, that’s something we can discuss in a free consultation, actually looking at each of the trade lines. Looking at the age of those trade lines, and helping you make a healthy decision on whether or not you should or you should not close something. Have a great day. Bye bye.