Credit repair works when you understand the law and you use it in your favor. So if you’re just getting into credit repair or you’re brushing up, here’s a guide to the laws you need to know.
Basically, once you’ve challenged information in your credit report, the credit bureaus and furnishers have 30 days to investigate and either verify it as correct or remove the disputed information.
They are also required to mail you the results within 30 days. What happens then? Knowing the laws will give you a map of the exact steps you need to take next.
What are the basic laws you need to know?
How can you use each of these laws to your advantage?
What does FCRA mean to you?
By the way, when I use the phrase: “You may seek damages”, the FCRA is very specific. Each occurrence can leave the bureau or furnisher financially liable and you don’t need to sue them yourself – most credit repair companies work with local attorneys that will sue them for you on a contingency basis, meaning you don’t pay unless they collect.
So that was a summary of the Fair Credit Reporting Act – it all seems pretty simple right? The FCRA is powerful when used properly.
The Federal Fair Debt Collection Practices Act is the legislation that governs the debt collection industry. For the sake of simplicity, in this article, I’ll call it the FDCPA for short.
These laws were enacted specifically to provide limitations on what debt collectors can do when collecting certain types of debt. The FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from you.
Debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business.
Why is FDCPA important to you?
FDCPA personal case study
I have a personal story that shows you the power of FDCPA.
Back when I did one-on-one credit repair, I once helped a client that had a debt collector trying to collect a really large debt – it was over 60k! The debt collector was calling him at work, late at night, and really caused a lot of problems. When I became aware of the issue, I mailed a simple validation demand to the debt collector. I asked for the written contract for the account they were trying to collect and they were not able to produce it. Then, I disputed the account with the credit bureaus, and viola! It was deleted and the debt collector crawled back under the rock he came from.
So, as you can see the Fair Debt Collection Practices Act is quite powerful, once you know how to use it!
A brief recap of FDCPA
Statute of Limitations
A “Statute of Limitations” is the length of time an action is valid.
There are statutes of limitations on all sorts of things. Today we’re talking about credit and debt so in this case, the Statute of Limitations is a definitive amount of time items can appear on your credit and how long debts can be collected. There are two primary statutes of limitations: “Debt Collection” and “Credit Reporting”.
For the sake of simplicity, we’re going to call them the “Credit Time Clock” and the “Debt Time Clock.”
Remember, the credit time clock is the maximum amount of time items can appear on your credit report. And, the Debt Time Clock is the maximum amount of time someone can bring legal action on a debt that you owe.
The “Credit Time Clock” is essentially the Statute of Limitations for Credit Reporting.
There's a bunch of names for it. Officially, it’s called "running of the reporting period,” and it’s also sometimes called the “statute of limitations for credit reporting” or the “7-year rule.”
I call it the “Credit Time Clock” and it’s one of the most misunderstood parts of the fair credit reporting act.
The Fair Credit Reporting Act describes how long items can remain on credit reports and when they must be removed. Some items have a seven-year expiration date like charge-offs and collections while other items remain for 10 years like bankruptcies - in the case of tax liens, they may remain indefinitely.
The credit bureaus keep personal credit history for a specific amount of time-based on the items DATE of FIRST DELINQUENCY.
The DATE of FIRST DELINQUENCY is when you stopped paying.
The following information is taken directly from the FCRA and from the Federal Trade Commission's official interpretation of the "running of the reporting period."
One important thing to mention is that you would expect items to automatically “fall off” your credit report when the time clock is over. Unfortunately, this isn’t always the case!
Sometimes, errors are made and OFTEN creditors or debt collectors will purposely report false “status” dates in hopes of keeping items on your credit report longer. The reason they do this is that the longer something negative is on your report, the more likely it is that you eventually pay it.
The Debt Time Clock also called the “Debt Collection Statute of Limitations” is the length of time a debt collection agency can take legal action to collect a debt.
The length of time to bring an action is determined by the type of contract (Written, Oral, Promissory, or Open-Ended Accounts) and is also determined by the STATE in which the debtor lived in when the debt began.
“Types of Debt”
Ok, now - let’s chat about expired debt!
I’d like to talk a little more about the debt time clock in relation to when the debt actually expires.
It's determined by two factors:
Knowing if a debt is expired or not gives you an edge
State Examples:
Let’s say you stopped paying a credit card debt in the state of Florida and it was sold to ABC collections, and ABC collections is coming after you. They’re calling you, sending letters, and threatening to sue. They want the money and they want it now! The statute of limitations protects you. In this example, if it is a “credit card”, that would mean it’s “open-ended”. Revolving accounts are accounts that you can use, payback - then reuse… means “open-ended”.
So in Florida, the length of time the creditor has to collect the debt is 4 years from the date of the last activity. The “Date of Last Activity” is when you last made a payment. If you never made any payments, it would be the date you opened the account.
In this example, if your last payment was over 4 years ago, technically, you no longer owe this debt. it’s no longer valid.
Let’s say you live in Louisiana, you had a personal loan and you stopped paying it. That would be considered a written contract. Once you've signed the written contract, you're bound by the terms of the contract. If you default on the terms of the contract by failing to make the payments as agreed, the other party may take certain actions to pursue you for what you owe. One of those actions could include filing a lawsuit against you to get you to pay up.
If they decide to sue you, they would have 10 years before the debt would expire. Ok.
I would also like to point out that they would be able to sue you after the 10-year expiration date—but if you can prove that the debt is expired, it’s highly unlikely they would win.
Knowing when debts expire is helpful for many reasons
So there you have it! Knowledge really IS power!
And now you have even more of the power you need to help you start or grow your own credit repair business. This is a huge confidence booster!
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