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A debt validation letter is the type of letter you send to a creditor or debt collector forcing the company to prove the debt belongs to you or youre obligated to fulfill the requirements of the debt. Consumers gain the right under the Fair Debt Collection Practices Act or FDCPA to use this letter for validation of the debt. Why Validate a Debt? 1. Accuracy and Ownership Anytime a debt goes to collection you can use this letter to make sure the information is accurate. It can also help you find out if the collection agency owns the debt or is just acting as a collector for the original creditor. This can make a difference if your original documents dont allow the creditor to assign your debt to a collection agency. Sometimes accuracy becomes an issue and you need to make sure the debt information is accurate before moving forward with a settlement. Other times the debt isnt even yours but the collectors start calling. Making sure the accuracy and the ownership of the debt are correct can be the difference between a lower credit score and a higher one especially if the debt really isnt yours. 2. Stop Collection Activities Once you send a debt validation letter the creditor or collection agency must stop collection activities. They cannot resume with these activities until theyve sent you the necessary information to validate the debt. 3. Prevent Reporting If the creditor cannot validate the debt you have rights under the Fair Credit Reporting Act. They cannot report the debt to the credit bureaus any longer because they were unable to validate the ownership and accuracy of the debt. There are many other good reasons to use a debt validation letter whenever dealing with a creditor or a debt collection agency. If you question the validity of any debt or the accuracy this type of letter can help you sort out the issue.
With the many different laws shaping the credit industry its important for consumers to understand at least a little bit about these acts. Certain laws are meant for protection while others are used to actually give you right. Heres a quick breakdown of a how some of these laws help you improve your credit score and deal with those pesky debt collectors. The Fair Credit Reporting Act of 1970 (FCRA) This law governs the way consumer information is collected reported and used. It mainly addresses the credit reporting agencies and holds them responsible for reporting accurate information. The FCRA is the act that sets the amount of time debts can stay on your credit as well. Fair and Accurate Credit Transactions Act of 2003 (FACTA) The FACTA was a shake up to the industry and provided consumers with the ability to receive one free credit report per year. This act is also responsible for making merchants truncate debit and credit card numbers on receipts. The Credit Card Act of 2009 When this act was announced it shook the industry. It introduced changes to the way interest rates are handled and allows consumers to optout. It also helps to keep your interest rates from going up due to your interaction with a different creditor. The Fair Credit Billing Act of 1974 (FCBA) This law addresses issues with inaccuracies reported on bills from credit card companies. It requires credit card companies to fix the issues quickly and credit payments. These are just a few of the many acts and laws in place to protect the consumer. Its important to understand your rights and by gaining basic knowledge of the acts involved in the financial industry you will know when a company is acting illegally and what you can do about it.
Understanding the process behind applying for credit is important. When you fill out the application and submit it for a loan credit card or any other type of financing you need to know what happens. Sending that application off will result in whats known as an inquiry. This means someone has looked into your credit and has ordered a copy of your credit report. The inquiry will show up on your credit report with the company name and the date they ordered the report. The only other thing this inquiry includes is a behind the scenes code allowing the industry its from to be identified. Will Others Known if You were Turned Down? You might be concerned if youre turned down whether another creditor will know this. The inquiry doesnt include a reason for the request and it doesnt include the results of the application. Other creditors will only know the company name and the date of their request. They wont know how much you applied for the results of the decision or anything else about the credit decision. What Happens if Youre Approved? If youre approved for the loan or financing it wont necessarily match the inquiry. Sometimes new creditors will try to match these up but it doesnt always work. Many companies use the marketing division of their company to pull the credit but not for the actual account. This eliminates the ability for a new creditor to assume you werent approved if an account doesnt match the inquiry. If youre turned down for credit you dont need to worry about it hurting your credit and inquiries only make up about 10 of your overall score. Its a good idea to get your own copy of your report before you apply for any type of financing. This will help you to figure out whether you will qualify before you apply.