Beware of Parked Debts on Your Credit Report
Debt parking is when a collection agency secretly places an account on your credit report, hoping you're pressured to pay because of a pending application.
Your credit report isn't a parking lot, but that doesn't stop dishonest collection agencies from treating it like one. Some collection agencies quietly place accounts on your credit report, giving you no warning, hoping you won't notice until you're in the middle of a major loan or job application.
Under pressure, you're more likely to pay up without question, so the debt doesn't keep you from closing on your home, purchasing your car, or getting the job. Parked debts may not be legitimate, and you could be paying for a debt that's not yours, has already been paid, is outside the legally collectible time period, or is inflated beyond what you originally owed.
Just how bad is debt parking? The Federal Trade Commission recently took action against a debt collection agency that placed close to $100 million worth of fake or questionable accounts onto consumer credit reports and collected more than $24 million. This tactic, known as "debt parking," violates debt collection and credit reporting laws.
Debt parking isn't new. In 2014, the National Consumer Law Center recommended some ways the Consumer Financial Protection Bureau (CFPB) could help consumers deal with this unfair collection practice. The recent FTC action is the first of its kind but hopefully not the last.
Signs a Debt Has Been Parked on Your Credit Report
Since debt parking involves collectors covertly placing debts on your credit report, catching this sneaky tactic means being more diligent about monitoring your credit. An unexpected drop in your FICO® Score may be the first clue that a debt has been added to your credit report, especially if you've been making your monthly payments on time and you haven't taken on any new debts. Collection accounts have a big impact on your credit, and your FICO Score can tumble if a new one is added to your credit report.
This shows why it's so important to check your FICO Score regularly. A significant drop in your score is a sign to inspect your credit report closer for suspicious accounts. Without keeping track of your credit, you may not realize a fake collection account has been placed on your credit report until you apply for a mortgage, car loan, or job and your application is denied.
What Are Your Options?
Be cautious with all debt collection accounts, even if the debt seems familiar. Dig deeper to verify the debt belongs to you, that the amount is correct, that it's within the timeframe for legal collection, and the collector has the right to collect on it.
The Fair Debt Collection Practices Act gives you the right to request this proof, in writing, from a debt collector. If the collector can't cough up adequate proof of the debt, they must stop collecting on it. That includes listing the debt on your credit report.
The Fair Credit Reporting Act gives you the right to dispute inaccurate information that appears on your credit report. The reporting credit bureau is required to investigate the dispute and remove the account if the collection agency doesn't verify the debt belongs to you.
In addition to monitoring your FICO® Score, check your credit reports from the three major credit bureaus before applying for a loan or job. This way, you can verify the information and clear up inaccuracies before you're in the middle of the application process, where the stakes are much higher.
LaToya Irby is a financial writer with over 14 years of experience. She's been quoted and published as a credit expert in several major publications including USA Today, U.S. News and World Report, TheBalance.com, and The Chicago Tribune.