One loan results in multiple marks on credit report

A single debt, sold and resold, may leave many negative blots

By Sally Herigstad

To Her Credit

Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Steward Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets. Ask Sally a question, or read her previous answers in the To Her Credit archive

Dear To Her Credit,
When I was younger, I defaulted on a student loan. I just agreed to settle the debt. The collector agreed to have it listed as settled in full or paid in full. I have written confirmation of this and have sent the cashier's check. However, on my credit report, there are four different negative listings for the same loan from different organizations. How do I go about getting them removed from my credit report? -- Marcia

Dear Marcia,
It's highly unusual for someone to be able to settle on a defaulted student loan. Federal student loans are not negotiable at all, and even lenders of private student loans have little incentive to negotiate. That's because student loans are generally not dischargeable in bankruptcy, and federal laws make it easier for lenders to collect on student loans than on most other types of debt.

Nevertheless, you say you have succeeded in settling for less than what you owed, and have sent payment. Now, to limit the damage to your credit report.

When you defaulted on your student loan, it was sent first to one collector and then to another. There's nothing unusual about that. When Collector A turned over the account to Collector B, Collector A should then have reported your balance as zero, and so on. If you owed, say, $40,000 in student loans, your total outstanding on your credit report should never have been more than $40,000. Now that you have paid it off, your balance on all four accounts should be zero -- or they should be just as soon as the last collector updates the report.

Mistakes happen, however. Check to make sure each collector has reported the balance as zero and that no lender or collector is reporting the same account twice.

If one or more of the collectors is still showing a balance, you have the right to have it corrected. Follow these steps:

1. Write to the collection agency that is erroneously showing a balance on the account that has been passed on or that you have paid. CreditCards.com has a sample letter to help you.

2. Write to the credit bureaus and give them the same information. The credit bureaus must investigate the case within 30 days and send you their findings. If your credit report changes, they must send you a new copy.

The payment history will remain on your credit report for seven years, on each of the four collection accounts. That's not as bad as you think. Any prospective lender can see that it's one debt being passed around. Even if your report shows the same account with the same lender twice -- which happened to me the last time I applied for a mortgage -- a most cursory glance by a loan officer should clear things up.

Once you've cleared up any errors, there's only one surefire remedy for accurately reported negative marks on your credit report, and that's time. Negative items generally stay on your report for seven years. However, a 1-year-old mark is better than a new one, and a mark from three years ago is better yet -- especially if followed by a period of no marks at all. The fact that you have settled and your account balance is zero is in your favor, too.

Here's to a perfectly boring credit report from here on out -- with nothing but positive things for your creditors to report. That's the best way to take care of your credit!

See related: 4 steps to settling privately funded student loans, Settling delinquent debt won't remove it from your credit report

Gary Foreman, "New Frugal You"

Sally Herigstad, "To Her Credit"

Cathleen McCarthy, "Cashing In"

Jane McNamara, "Let's Talk Credit"

Elaine Pofeldt, "Your Business Credit"

Erica Sandberg, "Opening Credits"

Published: January 25, 2013

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