A reader, “Debbs,” recently asked us about a collections account she discovered on her credit report — it was a final bill from an out-of-state utility company. She knew how it originated: As a favor, Debbs had allowed her sister to use her name and Social Security number to get utilities because Debbs had better credit. She wrote:
“I hadn’t been in the habit of checking my credit report and a little over a month or so ago I discovered that she’d skipped out on a final bill. Now the account’s gone to collections. As I got more information, it turns out that the bill is from almost four years ago.
“Is it in my best interest to go ahead and pay her bill to the collection agent since it’s in my name? What would be the result to my credit either way? If I pay it, will my score improve? If I don’t, how long ’til it’s off my report?”
First, we’re sorry to say it’s not her sister’s bill, at least not legally. Because the account was set up in her name and with her consent, it’s Debbs’ account. As for how long it will stay on her credit reports, that will be seven years and 180 days after she first fell behind with the original creditor. While the impact of a late or collections account diminishes with time, there is a risk of being sued and having to pay a judgment. A judgment would also hurt Debbs’ credit.
Debbs’ situation is mostly a cautionary tale, containing three important lessons.
1. It’s a bad idea to let anyone else use your information to apply for credit or get services such as cable, utilities or cellphone. When you co-sign or let someone else use your personal data, you are putting your own good credit at risk.
2. If you use — or let someone else use — your good name in this way, it’s important to keep track of the account.
3. It’s a good idea to monitor your credit, even if you have no reason to suspect anything is amiss. (Everyone is entitled to a free credit report each year from each of the three major credit reporting agencies. You can monitor your credit scores for free on Credit.com.) It’s easy to believe that all is well if you are paying your bills and have no reason to try to access your credit. But when you’re ready to finance a car or refinance a house is the worst possible time to discover a problem.
As for Debbs: Lesson learned. She’ll pay the collectors (it’s unlikely to help her credit scores, but it will mean she won’t be sued for the money). And she now sees the value of checking credit reports.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- Understanding Your Debt Collection Rights
- The Best Way to Loan Money to Friends & Family
Image: Big Cheese Photo