Credit Rating Repair: 6 Terms You Need to Know When working on repairing your credit, you can run into all sorts of problems, not the least of which is simply not knowing what people are talking about when they bandy about terms like Lien, Judgment, and Third Party Collection Agency. Here are a few definitions to cover some of those strange terms only commonly used by lawyers, collection agents and credit companies.
KD – key derogatory
This is a term you may find on your credit report if you’re trying to do some credit rating repair – it means a negative incident appearing on your record, be it charge offs, judgment or other negative event, of which there are many, which will affect your credit score. Derogatory and key derogatory share the same meaning in most cases, but while the other two credit report bureaus use them this way, Experian does not. Experian requires that to be a Key Derogatory, it must be a government debt, such as an unpaid student loan, term default (defaulting on the payment terms of a contract, such as mortgage default), a bankruptcy, settled debts (this includes short sales), or unpaid claims (collections, etc.)
Judgment A judgment is the last result of a legal action. Unpaid judgments can stay on your record for seven years from the filing date or the statute of limitations – whichever is longer. Each state has their own statutes, so check on your state’s SOLs if you want to know how long you have before you will be able to consider it done with. Also, they often have renewal terms – that means if you don’t pay it, it can be renewed against you and that can go on for a very long time. This makes credit rating repair especially difficult, and you’ll want to handle any judgments that can be disputed first in your credit repair efforts. Paid judgments are different. They can only report for seven years, regardless of the statute. In some cases, a paid judgment may be removed from your credit file before the 7 years are up if you dispute the judgment before it has been updated to reflect its paid status.
If you have the cooperation of the plaintiff (the person who got the judgment against you) you can also ask for a ‘set aside’ letter, which is a motion to get the judgment overturned – but this requires either complete cooperation from the person who won the judgment against you or an airtight case and a lawyer.
Lien A Lien is a legally binding claim to secure a debt. A lien could be a tax lien – the government uses these on all sorts of unpaid taxes – or a property and mechanics lien. What a lien does is make you pay before you are allowed to pay anything else, and make it impossible to sell or refinance whatever it is upon which they have placed the lien. It’s fairly common practice for businesses to place liens on property to insure they’ll get paid. You cannot remove a lien from your credit until it is satisfied, so you will want to get this paid off if you’re going to attempt credit rating repair.
Collection Account One of the biggest hurdles to successful credit rating repair is the presence of multiple collection accounts. A collection account is what happens when you stop paying on your debt and it remains unpaid for a certain length of time. The owner of the debt will then attempt to collect on the unpaid balance by transferring it from a normal account to a collection account. In other words, you have been kicked from the good standing list to the “doesn’t pay his bills” list. A collection account may be handled by the business’s own collection department, or they could be handed off to a outside or third party collection agency. Either way, they want you to pay up and are willing to spend a lot of their time (and yours) doing it.
Charge-off A charge-off is not, as some think, when a debt’s been just canceled out. When you get a charge off, that means the account is no longer open for you to use, and you still have to pay it off. You’re just marked in their books as a loss. This adds a negative entry, a charge off, to your credit report. They will still try to collect on the debt or get an outside agency to work on it. An account is usually labeled a charge off when its in 180 days of less than minimum payments. To get one removed, you have to wait for seven years or your state’s Statute of Limitations, or negotiate with the debt holder to have it removed if you pay up. Just paying it will only change it to ‘settled’ or ‘paid’ but it will still be there. Removing a charge-off is essential to credit rating repair.
Third-Party Collection Agency
A third-party collection agency is simply an outside collection agency that came in late â€“ they are not part of the original contract. The agency takes a percentage of the debts collected. The type of debt and age of the account determine the percentage the agent gets for collecting the debt â€“ it could be as low as 10% or as high as 50% depending on the agreement or whether they buy the debts outright. While there are many legitimate businesses that use outside collection agencies, many incidents of harassment and illegal collection methods used by the less scrupulous. Third-party collection agencies in the U.S.A. are subject to the Fair Debt Collection Practices Act of 1977, which was created in an attempt to control how third-party agencies are allowed to proceed. Understanding these terms and how they apply to your particular situation will help you to successfully complete your credit rating repair and get the financial freedom you deserve.