The goal of collecting debt is simple: get paid. Does reporting a debt to a credit bureau get it paid? In 10 years experience in credit and collections, I have only seen a handful of cases where it makes a difference. On the other hand, reporting a debt incorrectly and the arduous process of removing an incorrect item are real.
The Fair Credit Reporting Act (FCRA) was established in 1970 to protect the privacy and accuracy of individual credit files. It is a very good law that provides consumers with a number of protections. However, the law presents some opportunity for liability on the part of people who report to credit bureaus, called furnishers – inaccurate reporting, or for failing to respond to a dispute or request for removal. The law requires furnishers to make a “reasonable effort” to investigate and correct or remove an item, but gives no guidance as to what sort of effort is reasonable. Similarly, it is not entirely clear who would liable as the furnisher – the reporting agcny, the original creditor, or both.
FCRA lawsuirts rose 19% last year, and the trend is expected to continue. If you do not think that you could ever report a debt incorrectly, think again. There are many people with common names, Sr/Jr confusions, wrong addresses etc, and it is very easy to make a mistake.
It is also important to make sure that credit reporting is not overused or too heavily relied upon as a collection tool. If an agency tells you, “we report all debts to the credit bureaus in 60 days”, you should ask them which other ongoing efforts they will make. Persistence is key in collecting debt, and an agency that is simply going to slap it on a credit report after 60 days and do nothing more may not be working in your best interest.
So, before you attempt to navigate these murky waters, ask yourself these simple questions:
- What am I trying to accomplish by credit reporting?
- Do any benefits outweigh the risk?
- Is your collection agency actively working the file or simply parking an item on a credit report and hoping for the best?
- Are you certain that any itme being reported is accurate?
As angry as you may be about not getting paid, your goal should never be to punish someone for not paying you. Focus on the goal: getting paid!
Simply stated, credit bureau reporting can be a valuable tool. It does not work in every situation, and is certainly not the only thing you should do. In some cases, it can cause more harm than good. It should NEVER be used a substitute for personal contact with your customers, and a continued effort to work out a reasonable repayment arrangment.