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Debt Management

When a delinquent account threatens employment

Summary

If a surprise, forgotten delinquency is noticed by an employer, the best policy is honesty.

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QuestionDear Opening Credits,
In 2012, I closed an account with a credit union after paying all my debts. It came to my attention just last week that this account was reactivated shortly after the closure, and the bank charged me a $100 annual bank fee.

Over the past six years, I was not aware of this fee, and the account was not reported to the collection agency. However, the “unpaid” fee affected my credit score because it showed up on the credit report as 180 days past due.

More importantly, it jeopardized my job. I have to prove to my employer that I was unaware of this “past due debt” and reported truthfully on the job application. I have created a dispute with the credit bureau and the bank and am awaiting a response. Could you please advise how I proceed to clear this matter? – Agnes

Answer

Dear Agnes,
It seems to me that the employer is exaggerating the relevance of this one little old bill. Most people make a few banking mistakes at some point in their lives, and what you described is hardly the credit crime of the century.

Your best bet would be to explain precisely and honestly what happened. Maybe you moved around a lot and you did not get all your mail, or you changed phone numbers and weren’t getting the calls. If so, say so.

Also, it may help to go back to the credit union and ask if it keeps any documentation that can help your case.

For example, you might have had a positive history with the credit union before the annual fee problem. In that event, it’s possible the credit union will vouch for your level of responsibility. Ask the credit union to write a letter outlining what happened and to include a statement that the unpaid fee was an anomaly for you.

Credit unions tend to form relationships with their members, so they may be willing to go the extra mile by providing you with some kind of vouching documentation. The situation might be too far in the past, but it’s worth a try.

A consumer has the right to dispute information that shows up on a credit report if it fits within the guidelines outlined in the Fair Credit Reporting Act. Since you believe the bill was erroneous or outdated, you were correct to petition to have it removed.

Any evidence you gather from the credit union will help if the request is denied and you want to initiate another dispute. However, if you can’t prove the bill is incorrect and the credit union won’t budge, it probably won’t be expunged and it will stay there until seven years have passed.

The dispute process takes about 30 days during which there will be an investigation. If it’s found to be erroneous, the line item will be removed from your file.

If you can’t have the debt purged from your reports, the best-case scenario is that your employer accepts your explanation and, if you can get it, the support from your credit union. Hopefully, they will consider you based on your other qualities.

Know that 11 states (see chart) restrict employers from using background credit checks for screening, including limits on which, if any, industries or job functions are eligible to use them.

The good news is that the debt is question is probably not hurting your credit rating nearly as much as you think. That’s because the recency, frequency and severity of credit mistakes matter greatly. A single delinquent bill of just $100 that is 6 years old has a lot less impact than if it just happened.

Conversely, how you’ve been managing your current batch of credit accounts is major. That means you need to pay your current accounts on time and delete the balances every month.

By the time this bad debt drops off your report, you’ll have nothing but attractive data listed on your credit reports. Then anyone who looks at your reports – whether a lender or an employer – will judge you both fairly and favorably.

See related:7 times when it’s OK to check someone else’s credit, Damaged credit: Can you sue?

 

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