When a collection agency receives a defaulted debt from your original creditor, it has the right to report that debt to the credit bureaus. Collection accounts that exceed $100 have a significant negative impact on your credit rating. In some cases, you can prevent a collection agency from reporting your debt to a credit bureau.
Features
Many collection agencies use the threat of bad credit as a negotiation tool, by noting that if you pay the debt immediately, the company won't file a report with the credit bureaus. Thus, paying the collection agency quickly can help you avoid the credit damage that its credit entry would cause.
Facts
If you know you don't owe the debt, the Fair Debt Collection Practices Act gives you the right to demand that the collection agency provide written proof that the debt is yours. Until the company does so, it cannot conduct any form of collection activity-- including reporting the debt to the credit bureaus.
Time Frame
The Fair Credit Reporting Act stipulates that records of your debt can appear on your credit report for only 7.5 years from the day you defaulted on the original account. If any collection agency threatens to insert a debt on your credit report beyond the legal time frame, threatening to sue the company for violating the FCRA demonstrates that you're aware of your rights. That threat will often motivate the company to follow the law.
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