Under the Fair Credit Reporting Act, “Debt Validation” refers to the debtor’s right to ask the creditor to validate the debt which the creditor or the debt collector claims they own. It is one of the most effective weapons against the creditors who illegally claim any debt from the debtor either by sending a collection letter or by reporting the debt to the credit bureaus. Under Section 809 of the Fair debt Collection Practices Act, if a creditor or a collection agency claims that you them money, you can send them a debt validation letter by certified mail and the creditor must stop the process of debt collection till the time they properly validate the debt.

Original creditors either hire a debt collector to recover the outstanding debt or sell it off to a collection agency, because most of them do not have the time or manpower to recover the same. If the original creditor transfers the right to collect the debt to the debt collector, then after the debt is successfully recovered, the collector gets a percentage of the debt collected as their fees. However, in most cases, the original creditor sells off the debt to junk buyers and these junk buyers collect the debt as collection agency, but not as original creditor.

There are two ways by which the creditors can collect the debt. They may either send you a collection notice or report the debt in your credit report. If they send a collection notice, you must send a debt validation letter by certified mail within 30 days from the date of receipt of the notice, else it will be accepted that you agree with the debt. If you find the name of the creditor or the collection agency listed in your credit report, you can also send a debt validation letter. Debt Validation letter should always be send by certified mail with return receipt as a proof that you have asked for debt validation, in case the creditor later disagree that you have asked for validation of the debt.

Once the creditor receives the debt validation letter, they must validate the debt else they have to stop the process of collecting the debt further. Although it is not clearly defined in the Act of what should be a proper debt validation, a proper debt validation should include the following:

1. Proof that the collection agency has been given the right to collect the debt by the original creditor or the original creditor has sold off the debt to the collection agency.
2. Bills showing the outstanding debts along with interest and other charges.
3. Copy of the original signed loan agreement.

If the creditor or the debt collector validates the debt, you can negotiate with the creditor for pay for deletion. If the creditor agrees to pay for deletion agreement, the negative listing will get removed from your credit report after the debt is paid in full. However, if the creditor does not agree to PFD, you can ask the creditor to change the status as “paid in full”, after you pay it off. If you get proper debt validation, you should always pay off the debt to avoid judgment against you. However, you can also negotiate with the creditor for a discount on the outstanding debt if you cannot afford to pay it off in full. Under such circumstances the creditor generally does not agree to pay for deletion agreement. They only change the status of the listing to “settled for less” in your credit report.

If the creditor cannot validate the debt within 30 days from the date of receipt of the debt validation letter, then as per the FDCP Act, you are in no way responsible to them for the debt. You can send them a second letter along with a copy of the receipt, which you have received while you asked for debt validation, telling them that they have violated the provisions under the Fair Debt Collection Practices Act and so they should remove the negative listing from the credit report or you may file a suit against them for violating the Act. At the same time you can send a dispute letter to the bureaus telling them that you do not agree with the debt. The credit bureaus will verify the debt with the creditors or the collection agency who claims to own the debt, and will remove it from the credit report if the claim is not well founded.

What is identity theft?

Identity theft occurs when your personal information like your social security number, credit card number or your date of birth is stolen in order to take financial advantage from them. It is one of the increasing crimes in US, where unauthorized credit accounts are opened in your name without your permission. As per the Federal Trade Commission estimates, over 9 million identities are stolen every year. The thief first uses your social security number and your date of birth to obtain a driving license in your name, but with changed address and photograph, by stating that he has changed his place of communication. The identity thief then uses this license to obtain a new loan in your name, open an account with the utility bill companies or to rent an apartment. Identity theft can result in damaging your good name and credit report. The damage in credit report will lower your credit score and you may end up paying higher interest rates on new lines of credit or losing an opportunity in getting a better job.

Ways by which the thieves steal your identity.

There are various ways by which your identity can be stolen. The thieves may steal your credit card information while you are making payments with these cards at a merchant establishment, by using a special device. They also steal mails from your mailbox or obtain old credit card bills from the trash, to get your information. They may even get information from your wallet or purse by stealing them.

Impact of identity theft on your credit score:

Once the thief has access to your personal information, they may use it in the following ways:

1) Open a new credit card account in your name and use these cards to make payments. Now, they do not pay back the credit card debts and become delinquent. This delinquency gets reflected in your credit report and lowers your credit score.
2) They may use your name to open a new utility account like electricity or telephone and then default on the payments, which again gets reflected in your credit report and lower your score.
3) They may also use your personal information like the social security number to get a job or get medical assistance.

How to prevent identity theft?

The most important instrument to fight identity theft is awareness and the knowledge of how to take action once you find your identity is stolen. The following measures can be taken to avoid being a victim of identity theft.
1) You should never throw away credit card or bank statement to the trash without cutting them into pieces.
2) You should never disclose any personal information like your social security number, credit card number or your bank account number to anybody. Identity thieves sometimes use a method known as phishing, where they ask for sensitive personal information like your username and passwords through emails. You should never reply to these emails.

Mostly a person learn that he has been a victim of identity theft after the damage has been done in his credit and the creditor calls him up for the debt which he has not incurred. However, to avoid being a victim of identity theft, it is always better to check your credit report at regular intervals and report any discrepancies to the credit bureaus immediately.

What to do if you realize that your identity is stolen?

If you feel your identity is stolen, you should immediately place a fraud alert service with the bureaus. This service if offered free of any cost. All you need to do is to call any of the three credit bureaus and place a fraud alert service. If you place fraud alert service with any of the bureaus, it will automatically be set with the other two bureaus. The initial fraud alert service remains active for a period of 90 days. Once fraud alert service gets activated, the creditors will need to call you up whenever there is a new credit application in your name and verify it before opening a new line of credit.

What to do if you find your identity is actually stolen and the thief has taken financial advantage from it?

If your identity has already been stolen and the thief has taken financial advantage from it, you should immediately file a complaint with the Federal Trade Commission through their online complaint form by visiting their website. On filling up the online complaint form, you will become a registered victim of identity theft. Now, you should call up the FTC at their hotline number 1-877-438-4338 and update the complaint. Next, you should visit the local police station with an identity proof, photograph and a copy of identity theft complaint form and file a complaint there. Finally, notify the creditor that you have been a victim of identity theft.

Credit score is actually a numeric three digit number which proves your creditworthiness to the lenders. It is a statement showing your credit transactions in the past seven to ten years and includes all open and closed lines of credit in your name. The credit report is mostly dependant on your repayment history i.e, your consciousness in repayment of the loans. This credit score is also called the FICO score as it was developed by Fair Isaac Corporation and is offered by the three major credit reporting agencies (also known as credit bureaus) of US – Experian, Transunion and Equifax. The scores offered by each of the credit bureaus may sometimes differ by a few points because the creditors may not report information to all the bureaus at the same time.

The items in your credit report generally fall under the following heads. They include your personal information, potentially negative items, accounts that are in good standing, and hard inquiries conducted in your credit report. Your personal information includes your name, a few digits of your social security number (for security reasons) and your date of birth. Negative information may include the public records such as judgments and bankruptcies, and outstanding debts with the creditors and finally hard inquiries in your report may include the names of the creditors who have pulled out your credit report in the last two years to check your credit history to judge your credit worthiness.

The FICO scoring model has been developed in the 1950’s by the Fair Isaac Corporation to determine the eligibility of the borrower in opening a new line of credit. The score has a range from 350 to 850 points, with higher score increasing your potentiality as a borrower. The higher is your credit score, the lower is the interest rate on your loans. So it is always essential that you improve your score. The score can be increased by keeping in mind the factors that determine it. The FICO score is based on five parameters which include the following:

- Credit history: It has a significant role to play in improving your score since it contributes 35% in your FICO score. So in order to improve your score you need to build up a good credit history. For this all you need to do is to make purchases with your credit card and repay them back within the due date. You should not make defaults on your other loans, or make any missed payments, if you want to improve your score.

- Length of the credit history: It has a contribution of 15% in your FICO score. So you should always try to increase the length of the credit history in order to improve your score. For this, you should not close any existing credit cards which have a good credit history. If you are unable to maintain your cards and you want to close some of them, it is better that you close the newer ones.

- Amounts owed: This is also a major factor in determining your credit score as it contributes 30% in your score. So to make this factor contributes positively in your score, you should always make sure that you do not exhaust more than 30% of your credit limit on your cards.

- New credit: It includes number of new lines of credit and hard inquiries in your credit report. When you apply for a new line of credit, be it for credit cards or other loan application, the creditor pulls out your report. This is called a hard inquiry. A hard inquiry may lower your FICO score by 5 to 10 points. Hard inquiry reflects your hunger for credit and so it lowers your score. So you should limit your credit application as far as possible in order to improve your credit score.

- Types of credit used: 10% of your credit score is contributed by this factor and includes the different types of credit you have already taken.