Category Archives: Credit Repair

Can a Credit Card Debt Be Reported on a Child’s Credit Report?

Real bank or piggy-bank?ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I got a Chapter 7 discharge about a year ago. Long before filing bankruptcy I got an extra credit card for my daughter to use. At that time the bank assured me that I would be the only person liable for charges on the card. My daughter just got her credit report and the credit card account appears as a charge off. 

How did the company get her social security number? And didn’t it violate the agreement it made with me? My daughter is now 17 years old, and I’m sick over the thought that I ruined her credit. 

Yours truly, 

Marjorie

Dear Marjorie,

I suggest that your daughter dispute the debt on her credit report. It’s not hard to do. You can learn how in Nolo’s article How to Dispute Errors on Your Credit Report.

In her dispute, she should state two things:

  • that the credit card account is not hers, and
  • that even if it was, she is under age 18 and is now voiding the contract, so does not owe the credit card company anything

I think this credit dispute will be quickly resolved in her favor. If it is, that annoying item will disappear from her credit report.

Here is a little background on each of these arguments.

The Credit Card Account Is Not Hers

The credit card company told you that you would be the only one liable for the charges, so the account never belonged to your daughter. Your daughter should state these facts in her dispute.

What If the Agreement Did Hold Your Daughter Liable?

But what if the credit card agreement did hold your daughter liable?  It’s likely you no longer have documents proving the contrary. And credit card companies do issue extra cards to authorized users and hold the user liable. In this case, because the bank has her social security number, is it possible the agreement said she would be liable?

A Minor Can Void a Contract

Even if the credit card agreement did hold your daughter liable for the credit card debt, she can void the contract before she turns 18.

Because the law says that minors lack the capacity to enter into a contract, it gives minors the option to either (1) honor the contract, or (2) void the contract before he or she turns 18.  (There are a few exceptions: Minors cannot void contracts for necessities, like food and shelter.)

Your daughter should immediately notify the credit card company and the credit repair agency that she is voiding the contract.  She can do this by stating:

“While I believe that I never had a contract with [credit card company], if I did, I am now voiding the contract.  I am under the age of 18.”

At that point, since there is no contract in place, your daughter does not owe the credit card company anything, and she can dispute the entry on her credit report.

A Novel Argument?

And if you want to try something new, consider this. Last July, the new Children’s Online Privacy Protection Act Rule (COPPA Rule) took effect in California. If you use the above tactics and still cannot get the item removed, you could hit the credit card company with a demand to remove the item on the ground that it is violating COPPA by publishing information pertaining to the identity of a minor.  It might be a stretch to say that a credit report (which has a limited viewing audience) is “publishing” information about a minor and therefore violating COPPA, but it doesn’t hurt to make the argument. Rather than test new legal waters, perhaps the credit card company (or the credit reporting agency) will back down and remove the item.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Should Bankruptcy Cause a Guilt Trip?

Sheep dog covering her eyes with her pawASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed for bankruptcy a year ago. I felt badly about filing, but after paying my bills every month I had $10 left to last until the next month. Financially, I am now better off. Can I pay my old creditors back in order to get credit? I know it’s not right to run out on creditors. 

Carol

Dear Carol,

I’m really glad you’re now better off.

But your old credit is gone. Paying the old creditors does not make it come back. However, you can take steps to rebuild your credit so that you can get new credit or loans in the future. For tips, see Nolo’s Rebuilding and Improving Credit topic page.

Bankruptcy ≠ Running Out on Creditors

I’d like to clear up something else. By filing for bankruptcy, you didn’t run out on your creditors. In your bankruptcy, you subjected all of your assets to administration by the court. If the trustee found anything of worth, he or she would have sold it to pay your debts.

If you had engaged in financial wrongdoing, the court would not have granted you a discharged. And in giving you the discharge, the court also determined that you could not afford to pay anything and maintain a very modest standard of living. The privilege of a bankruptcy discharge is reserved for people like you who are honest but unfortunate.

I wonder if the CEO of General Motors feels bad about the millions of shareholders, bond holders, and creditors who didn’t get paid those billions of dollars owed in the GM bankruptcy. I certainly hope so, but I doubt it.

Keep doing well, and stop looking back.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

ind Leon on Google+

Equifax Gets Slapped by Oregon Jury

gavel over money istockLast week an Oregon jury awarded a whopping 18.4 million in punitive damages against Equifax, one of the three national credit reporting agencies. The plaintiff in the lawsuit, Julie Miller, had tried to untangle her credit file for two years (Equifax had mixed her information with that of another Julie Miller) – but she  hit a brick wall . . . until she sued.

Trying to Untangle “Mixed Files” in Your Credit Report: Are You Facing a Brick Wall?

Mistakes in credit reports are common.  Up to 25% of credit reports contain errors. Some errors are severe enough to cause consumers to be declined for loans or credit cards or suffer other negative credit consequences. (See my previous blog post on this issue, FTC Report: 1 in 4 Credit Reports Have Errors.)  While the Consumer Reporting Act requires credit reporting agencies (CRAs) like Equifax to follow certain procedures to correct errors once disputed by a consumer, those procedures don’t always work. (To learn how to dispute credit report errors, visit Nolo’s Cleaning Up Your Credit Report topic area.)

As a recent New York Times article on the Miller verdict points out, when consumers try to fix “mixed files” errors (where the credit reporting agency includes information from one consumer on the report of another, often because they share the same or similar name) they don’t often get results. This is because the CRAs like to deal with disputes using automation – and mixed files can’t be untangled that way.

Does Equifax Care?

The 18.4 million award to Julie Miller is reportedly the largest ever seen in this type of case. But lawsuits against credit reporting agencies are common. Some consumer lawyers say that large verdicts, such as this one, are just a cost of doing business for Equifax. They don’t see this case as changing behavior. Others say this might catch Equifax’s attention.

The CFPB:  The Knight in Shining Armor?

The newly minted Consumer Financial Protection Bureau (CFPB) has the responsibility of overseeing the largest CRAs, and Equifax falls into that category. Along with taking measures to collect information from consumers and field complaints about CRAs, the CFPB also has the power to issue rules governing CRAs.

Consumer lawyers have been making a stink about problems with the CRAs’ procedures for a long time (I recall working on this issue as early as 1995.). But despite those efforts, the CRAs have changed little in the way they do business.  If the CFPB gets involved, however, the credit reporting agencies may be faced with a rude awakening. Time will tell.

What Can You Do?

In the meantime, if you have a complaint about a CRA, be sure to lodge it with the CFPB. It wants to hear from consumers. And the more complaints the CFPB receives about a particular problem, the more likely it will be to focus energy on addressing it.

You can file an online complaint with the CFPB by visiting its website at www.consumerfinance.gov and clicking on “Submit a Complaint”.

(You can learn more about credit reports, credit scores, disputing errors, and rebuilding credit in Nolo’s Credit Repair topic area.)

FTC Report: 1 in 4 Credit Reports Have Errors

The FTC recently released figures, based on a years-long, wide-spread study of consumer credit reporting and scoring, that are a wake-up call for American consumers. The study revealed that one in four Americans had errors on their credit reports. About one in ten consumers saw an increase in their credit scores after consumer reporting agencies (CRAs) fixed the errors. About one in twenty consumers had errors severe enough to cause them to pay more for auto loans, insurance, and other credit products.

(Learn more about credit reports and credit scores.)

The FTC Credit Reporting Study

The FTC study began in 2004 with the final report due in 2014. Along the way, the FTC has been reporting results every two years. The study is a first in its magnitude – it includes information from consumers, consumer reporting agencies, lenders, creditors, debt collectors, and the courts. (Read a full report of the FTC study.)

Disputing Errors Can Help

The study also tracked consumer efforts to dispute errors on their reports, and the CRA responses. One in five consumers had an error that was corrected by a CRA. Four out of five consumers who filed disputes had some type of change made to their reports.

One in ten consumers had their score increase after errors were fixed. And one in 20 say and increased score of more than 25 points.

Check Your Credit Report Regularly

According to Howard Shelanski, Director of the FTC’s Bureau of Economics, the study results were, “…eye-opening numbers for American consumers,” and made it clear that “consumers should check their reports regularly.”

To learn how to review your credit report and dispute errors, visit Nolo’s Cleaning Up Your Credit Report topic area.

FICO Provides Insight Into the Impact of Foreclosure, Bankruptcy, and Short-Sale on Your FICO Score

exitsigncreditThe other day I listened in on a Making Home Affordable training webinar entitled The Impact of Mortgage Assistance on Credit. The training was particularly noteworthy because of its presenter:  Joanne Gaskin, Senior Director of Scores and Analytics at FICO. Yes, Joanne did a great job presenting the material. But even more exciting — she was willing to answer listener questions about FICO scores.  It was clear that the audience was salivating — I mean, when do you get to ask FICO what goes on in their score-making world!

Here are some interesting tidbits I gleaned from Ms. Gaskin’s presentation:

“Simulated Statistics”

Ms. Gaskin presented a “simulated” chart of the impact of  the following on consumer scores:

  • late payments
  • foreclosure
  • short sale with deficiency
  • short sale without deficiency, and
  • bankruptcy.

The statistics were simulated because they weren’t based on actual consumers, but were FICO’s approximation of what would happen to the average consumer going through the various events. The chart presented the impacts for consumers starting with different scores.

Here’s what I learned:

Bankruptcy Is the Worst, Followed by Foreclosure

Bankruptcy had a slightly worse impact on scores than any of the other events.  Foreclosure was second to last in terms of the biggest negative impact. Short-sellers did slightly better — those without a deficiency faring better than those without. But there wasn’t a huge difference between all of these events.

Late Payments Have a Huge Negative Impact

Surprisingly, having a 30-day, 60-day, or 90-day late payment had a big negative impact on a score.  Granted, it was not as large as going through foreclosure, but scores dropped significantly all the same.  For example, a consumer with a starting score of 680 dropped to 600 with one 90-day late payment.  Foreclosure for the same consumer dropped the score to 575. That means that the late payment caused an 80-point drop; from there it was just a 25-point drop once the foreclosure happened.

The Jury is Out on the Impact of Loan Modifications

According to Ms. Gaskin, loan modifications are currently reported as CN and CO on credit reports. For now, the FICO score bypasses these codes, which means they are viewed neither positively or negatively. However, FICO will consider  whether you were paying as agreed prior to and post modification. If a lender reports a loan modification as “paying under a partial payment agreement,” this will be a negative for your FICO score.

The Higher Your Score, the Bigger the Plunge

Those with higher scores lost more points in each of the various events. For example, a consumer with a starting score of 820 had a 100 point drop with just one 30-day late payment. A consumer with a score of 680 dropped only 80 points with a 30-day late payment.  If the same consumers filed for bankruptcy, the first (starting score of 820), dropped about 270 points to end up with a score of 550. The second (starting score of 680) dropped only about 150 points, to end with a score of 530.

Each Case Is Individual

Keep in mind that these simulated numbers were just that, simulated. Each person’s situation is different. Your score may drop more or less than the average consumer based on your prior credit history and how the delinquency or negative event is reported.

To learn more about the individual factors that influence your FICO score after a negative event, see Nolo’s article Which Is Worse for Your FICO Score: Bankruptcy, Foreclosure, Short-Sale, or Loan Modification?

For tips on rebuilding your credit, visit our Credit Repair topic area.