Here's some advice I got from a credit counselor on how to deal with collection agencies:
- Tell your clients to go to: http://www.annualcreditreport.com/ to get their free annual report. They should stay away from the other websites that are businesses trying to get money for additional services. This site also tries to get you to order services for a fee so they need to be careful when navigating through it. The government said the credit bureaus have to provide one free annual credit report but it doesn't monitor how they do it. (Gotta love the free enterprise system...) For their protection, your client also needs to be able to answer a few basic questions on their financial accounts and specific information on at least one account for one of the bureaus.
- If your client has collections that they can pay off, they can call the collection agency and negotiate a settlement instead of paying the entire amount. Most of the time, collection agencies will agree to settle and it can be for less than half of what was initially owed. These collection agency guys are sometimes pretty hard to work with and once they get your client's new contact information on their caller ID, your client needs to be able to resolve the collection or they might be in for a barrage of calls and threats for weeks to come. The best advice is not to call if they cannot pay it off in full.
- Once a settlement is agreed to, your client should NEVER (if possible) send any money until the collection agency faxes them a letter stating that they will report the line item PAID IN FULL WITH A ZERO BALANCE TO ALL BUREAUS THAT REPORTED THE DEROGATORY ITEM with the agreed upon payment. Your client should keep this letter to help with any future issues with these collection agencies that might arise and keep records on any payments that they made to them. This is hard to do and you might have to settle for a verbal committment.
- Then your client should try to do a quick collect with Western Union to the collection agency. This is a method to send a payment quickly that most collection agencies are now encouraging you to do. If collection agency doesn't allow this, then your client should overnight the payment with a copy of the letter and follow-up with a call to make sure that the collection agency received it the following day. Your client should remind the collection agency to clean up the credit report like they stated they would in the letter that they sent to your client and let them know when it is done.
- In 30 days, your client should go online again and order a new report. If the collection is still there, they should go over to the right side and order a dispute and select "paid in full". The bureaus will send them an investigation report when they are through and then in about 30 more days, they can go online again and check their credit report and the item should show a zero balance.
Keep in mind that collection agencies are buying bad debt accounts from medical services offices, credit card services, auto companies, etc. for pennies on the dollar and they make money by collecting on these debts. Their collection tactics borderline on being unethical and abusive so it's no wonder people have their phones disconnected and many get caller ID to screen their calls.
She has noticed that collection agencies are now selling bad debts they bought and couldn't collect to other collection agencies. So, just because one agency quit calling, doesn't mean that there won't be more calls in the future. The best advice is to try to settle up with collection agencies and move on with your life with a better credit score. In addition to getting approved for a loan at a better rate, credit scores are also being used for getting insurance at a better rate and to get approved for renting property too!
Just remember that we can approve people that have bad credit if there are no collections and there are no other problems with debt to income ratios, income, assets, etc. most of the time! For some, we can ignore up to $5000 in collections so they should talk to us before taking any action.
Unfortunately, the act of paying off a bad debt also updates the "recent activity" field on the derogatory item on the credit report. This can cause a derogatory to jump from a minor hit to a major hit on their score. Any activity within 6 months on derogatory items can kill the score so you need to make sure that we cannot approve them before they take any action on repairing their credit. Ask them to call us so we can give advice on this for you.
Finally, if the bad debt is the responsibility of the divorced spouse, as is often the case, your buyers should NEVER call the collection agency to dispute because this just gives them another person to go after with their threatening letters and phone calls. Instead, they should send us a copy of the divorce decree showing the correct spouse responsible for the debt and many times we can ignore the collection so we can get them approved.
I hope this advice helps you in working with prospects with credit issues so you can sell more houses!
Call me with your next prospect so we can keep them on the hook and help reel them in for you!!
Sam Thompson - PHH Mortgage - "working hard for our agents!" Cell 843-230-7929 - Toll Free 866-256-5421
www.activerain.com./luckydog1 - SC
www.activerain.com/luckydog2 - NC
http://samthompson.phhmortgage.com/
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