Important Credit Information

1. What can creditors do if I don’t pay them?

As you know there is no debtor's prison in this country. This means that not paying your bills will not land you in jail (the IRS may be a different story). A secured creditor (where debt is backed by property) can foreclose on the property that secures the loan.

Unsecured creditors may get a court judgment and attach your property and become a secured creditor. However, if you have no property of any real value, there is very little chance that your property will be seized. In this case, if you have a job, a creditor can attempt a wage garnishment. This is where a percentage of your paycheck (e.g., 25%) is automatically deducted and paid to the creditor who evoked the garnishment. While you have no job and no real assets there is virtually nothing a creditor can do.

Moreover, even if you have a job and some assets, if the debt is for a small amount the cost of collecting may exceed the amount of the debt. Therefore, in many cases a creditor will stop short of any legal action against you and simply write your debt off its taxes as "bad debt." However, if your financial position improves and the creditor finds out, it can still come after you later for collection.

2. My creditors are getting very aggressive in their tactics towards me, what are my rights?

The Fair Debt Collection Practices Act (FDCPA) provides the guidelines that debt collectors must follow when collecting debts. If they use deceptive or harassing techniques in collecting, you may sue them in civil court.

First, a debt collector is defined by the FDCPA as any person who regularly collects debts owed to others -- this also includes attorneys who collect debts on a regular basis.

Second, a debt collector working for a collection agency is only authorized to call you between 8 a.m. and 9 p.m unless you agree otherwise. A creditor may not contact you at your place of employment if the creditor knows that your employer disapproves. Moreover, the debt collector must not make false or misleading statements, must not make abusive remarks or harass you, and is not authorized to call your friends and/or family to collect your debt.

Also, within five days after the creditor first contacted you, it must send you a written statement of the amount it thinks you owe, the name of the creditor to whom you owe the money, and what to do if you believe that you do not owe the money. If, within 30 days after you are first contacted, you state in writing to the creditor that you do not owe the money, the creditor must stop contacting you unless it provides you with some proof of the alleged debt.

If you do not want the agency to contact you anymore, turn the tables on them through the following methods:

1. When they call refuse to discuss anything with them until the debt collector on the phone provides you with the following information: Name and Title, Name of Company, Mailing Address, and Phone Number.
2. Write a "Cease and Desist letter" to them using certified mail (return receipt requested) telling them to stop contacting you. By federal law they must stop contacting you, with the exception of telling you that their collection efforts have ended or that the collection agency intends to take specific action against you (e.g., sue you).
3. The Cease and Desist letter should contain the following statements:

   (a) Pursuant to the Fair Debt Collection Practices Act, you no longer want them to contact you; and

   (b) Any attempt to do so in contravention of the law will be pursued to the fullest extent possible through civil and criminal remedies; and

   (c) You intend to use a recording device to document any further telephone contacts from their agency.

4. Keep close records of when you sent the letter, if and when they called, and what they said. If they contact you again (for anything aside from #2 above) they may have violated the Fair Debt Collection Practices Act and may be liable to you for damages. (Note that the FDCPA rules do not apply to in-house collection departments. In those cases, you must look to individual state law for protection).

3. What is the truth about credit agencies that promise to completely eliminate your bad credit history by creating an "alternate credit file" for you?

Beware of credit repair agencies that promise to eliminate your credit history by creating a new credit identity for you. They may be causing you to commit federal and state crimes. Typically, these agencies market their scheme by giving you a doom-and-gloom scenario regarding your credit. For instance, they will tell you that your bad credit history will prevent you from getting credit for up to 10 years. Often they will claim that their program is legal and some will even claim that their program is affiliated with the federal government. Recently, the federal government has been cracking down on these practices and even taking action against agencies that duped clientele.

Here is how it works: some credit repair agencies promise to create a new credit identity for you so that your bad credit is no longer shown on your credit report. For a fee, they promise to hide any unfavorable credit information by establishing an "alternate credit file" in your name. They do this by directing you to apply for an Employer Identification Number (EIN) from the Internal Revenue Service. EIN numbers are typically used by businesses to report financial information to the Social Security Administration and the IRS and resemble a Social Security number. Then they direct you to use your EIN number on credit applications in the space where the credit application asks for your Social Security number. This way, when a potential creditor pulls a credit report using the EIN number that you gave them, the creditor will only see your new untarnished credit history and not your real credit history. To buttress this scheme, they typically advise you to use a new mailing address and references.

The problem with this scheme is that it is potentially illegal in several ways. For example, when you are filing for an EIN number with the aforementioned intent, you may be committing the crime of false pretenses. Similarly, when you use your EIN number in the space on a credit application where it asks for your Social Security number, you're committing fraud. Further, if you misrepresented your Social Security number by telephone or mail you may also be guilty of wire and mail fraud. In addition, if you ever want to discharge your debts by filing bankruptcy, you may not be allowed to if you used false information to obtain credit. Also, many states have laws classifying the creation of an alternate credit file as civil fraud.

As you can see, this shortcut to better credit is typically not worth the risk, especially given the fact that if you follow the steps provided by this site, you can reestablish an "A" credit rating again in a relatively short time.