When a delinquent account threatens employment

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Being honest with an employer about a credit report goof is best

Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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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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