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How Junk Debts affect Credit Reports and Scores

By Janet Lacey
Published: Tuesday, December 15th, 2009

Credit account holders have to wait for at least seven years before their bad debts will fall off from their credit reports. A credit account holder has to be patient enough to wait for their bad debts to fall off before they can take steps in increasing their FICO score and their general credit worthiness rating. The recent debts of the credit account holders have to qualify for the out of statute of their debt agreement. Out of statute means that the debtor is no longer obliged by the law to pay the amount that he or she has borrowed from the creditors involved. Bad debts are not the end for financial companies to make profits from the already indebted individuals. Bad debts surprisingly bred a new form of profiteering. The new business that evolves on bad debts is called junk debt buying.

Many financial companies have opted to be the collection agencies or the CA that are prescribed in the Fair Report Crediting Act or FCRA. These companies are responsible for making renewed credit reports transform back to its old state. The sole job of these CAs is to make profits from buying bad debts or those debts that are out of statute. These companies are also called as zombie debt collectors and bad debt buyers because they buy bad debts to bring them back to statute. These companies try to recollect the bad debts from debtors who have equally suffered from the bad effects of an unpaid debt credit history record in their credit report and FICO score for at least seven years.

Junk debt buying companies involve small scale financing agencies up to large Wall Street financing firms. These companies buy bad debts for a cent to the dollar rate. The profits of these companies are made up of the difference between a cent to the dollar plus the service charges that they make up for late payments. Bad debts from defaulted credit card accounts make up the 70% of the total bad debt collection of junk debt buying companies. Adding up to these bad debts are auto loans, telecommunications debt and retail debts.

Junk debt buying companies greatly affect the credit report and score and individual through its ability to make out of statute debts spring back to statute by finding ways to collect from the debtors. These companies use different techniques to make debtors pay for their bad debt. These ways can be forceful in their own ways. Even the smallest payment from the debtor will start the statute of the debt over again making the borrower bear the same burden that he or she has already dealt with many years ago.

Junk debt buying companies usually impose verbal abuse and multiple listing of debts. At worst situations JDBs even find ways of re-aging the debt which means the debts will appear more recent. In cases where debts are re-aged, the borrowers will have to find new ways of dealing with their credit reports and scores. The worst part is most of those who are forced to pay their junk debts do not know that they do not have to pay these debts.

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