Credit Bureau Reporting and Debt Collection: The Upside and Downside

Posted by Marilyn Miller on April 20, 2018  /   Posted in Uncategorized

 

Credit bureau reporting is often cited as the key benefit of hiring a collection agency.  A common belief is that if you report a debt to one or all three of the credit reporting agencies (Transunion, Experian and Equifax) it will assure that a consumer will pay a bill. If that were the case, why do 30% of Americans have credit scores under 600, which is considered “fair” credit at best, and poor or subprime, at best? There are also people who have no credit score at all, because they do have the need for credit. Does anyone really believe that these people will be motivated to pay a delinquent bill if they are threatened that the debt will be reported against their credit file?

So what is are the upsides, or benefits  of credit reporting as respects debt collection?

Credit reporting is definitely a tool that collection agencies use. There are times when people decide to clean up their credit because they are buying a home, or just want to be more financially responsible. At those times, consumers will pay the debts that are on their credit reports.

So does credit reporting actually help collect a debt? It can motivate your some people to pay the bill so as to avoid the impact to their credit score. Also, there is a chance that even if your customer does not care about their credit score today, they will at some point in the future. Federal and state laws vary on how long debts can be reported, but the “future” could be years from now though. How long do you want to wait? What is your collection agency doing in the meantime?

When a collection agency reports a debt, it makes their customers, the original creditors feel as if the delinquent customer has not “gotten away” with not paying their debt. The only problem with that thinking is that the delinquent customer already has already gotten away with it!  Credit reporting used for revenge is just silly.  Focus not on getting even, but on recovery – on getting paid.

Which brings me to the downside of credit bureau reporting…

Without even taking into account the security risks of data breach, credit reporting does have its downsides, mostly because people overestimate its effect on debt collection. Credit bueau reporting is only one tool a collection agency can use to collect a debt. My opinion is that many collection agencies overuse it, Ask your collection agency what they will do to recover for you. If credit bureau reporting is the first thing they tell you, it likely means that is pretty much all they are doing. Perhaps they are sending a letter and making a few calls, but after a month or so, the debt is parked on your customer’s credit report and nothing new happens.

In my experience, most people sent to collections are not primarily concerned with their credit scores. It may be an issue, but it is not the most important issue. The most important issue, the one we hear again and again is just not having the ability to pay. Therefore it makes sense to work with people and get them into affordable payment plans, rather than punish them for something that may be totally out of their control. Even for those customers that intentionally stiff you, your focus should not be on getting even with them. Your goal, and the goal of your collection agency should be to recover as much money as possible. It can be done without credit reporting. I know – I have been doing it for 14 years.

As of July 1, 2017, credit reporting agencies were also required to remove many debts that did not have key identifying information on such as social security number and date of birth. Going forward, if do not have complete information on customers, the credit bureaus may be unable to accept reportings. The impact of medical debt on a credit score has also been minimized So an active plan for recovery becomes even more important.

Credit reporting and debt collection, therefore, are two distinct things. One is a tool that may or may not work, and the other is a process – an action word. What actions you and your collection agency take will make the difference in getting you paid.

 

 

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