The New York Federal Reserve report recently shared a chart that does not bode well for young millennials. It showed a trend of 18-29 year-olds who are more than 90 days delinquent on credit card payments.
This can be concerning for a few reasons; one, because the millennial generation has been traditionally known up to this point as being debt-averse and critical of banks and creditors. The millennial generation grew up watching their parents struggle during the Great Recession that ravaged the US economy during the late 2000s.
Economists believe that this was the genesis for the millennial generations’ distrust in banks and reluctance to take on credit card debt. In fact, between 2008 and 2012, only 41% of adults in their twenties even had a credit card.
The point is that up until very recently millennials have been cautious with their money and typically responsible with credit card debt if they even had any. But that is not the only concerning factor to this growing trend.
Having credit card debt is one thing but not having any means to pay it back is a much more alarming notion, but that is the reality that many millennials are facing. Just a few years ago, the millennial unemployment rate was at a staggering 12.8%. It is even grimmer when you compare that number to the 4.9% of other eligible age groups that were unemployed at the same time.
The US economy has put the Great Recession behind it and has been experiencing growth for the last decade, so the jobs are out there. The problem is that millennials tend to have higher expectations when it comes to getting a job.
Millennials often get looked at as a remarkably entitled generation of people, and this reflects in the way they select jobs. Many job offers are turned down by members of this generation because they were expecting a higher pay rate even in comparison to their lack of experience.
Education may have something to do with the millennial unemployment rate as well. Many companies are reporting that the upcoming workforce is lacking in real-world skills like critical thinking and basic communication. Millennials are also more likely to have gravitated towards theoretical studies in their college educations, which doesn’t help the situation much.
This lull in employment could not have come at a worse time for millennials either. It is generally agreed by people of the previous generation that it is much harder to get started in life financially these days than it was for their age. Part of this has to do with the increasing cost of higher education, so student loan debts are higher than ever.
This creates a vicious cycle for millennials in terms of job prospects. For example, a fresh-faced college graduate may open a line of credit to help furnish a new apartment with the hopes of landing a job soon. Maybe he also has a significant amount of student loan debt. Things are shaky as he or she is first entering the job market, and a combination of high expectations, mounting debt and lack of real-world skills are making it difficult to land a job.
So their credit scores are taking a nosedive and guess what: some companies will actually look at a candidate’s credit score and factor that into their decision to hire or not.
What is Contributing to Millennial Credit Delinquency?
Seeing a generation traditionally wary of credit card debt and realizing that it is harder for them to get a job are both bad omens but there what is causing the actual rise in delinquency among millennials?
One of the most immediate contributors to the increasing amount of millennial credit card debt is raising rates. In 2018 interest rates were at a staggeringly low level but they are beginning to rise again, meaning that even people with good credit are facing interest rates of 18-25%.
Student loans are another factor in this trend. The prior generation had the benefit of much more lenient crediting when it came to student loans with significant banks offering specialized student credit cards. These student credit cards were relatively easy to come by, but the Credit Card Accountability Responsibility and Disclosure Act (also known as the CARD Act) of 2009 changes all that.
Now students have to show proof that they will be able to pay back student loans or at least evidence that their parents would help them. This has resulted in millennial students taking high-interest loans for their education, which can be challenging to claw one’s way out of.
This all sounds like a financial emergency, but it is crucial to keep things in perspective. Even with a rise in millennial credit card delinquency the debt-to-income ratio as reported by the Federal Reserve is the lowest it’s been since 1980. Delinquency rates have also been at a record low in the past year, so we are nowhere near a financial crisis even with this uptick in millennial payment delinquency.
Many millennials are just starting to build their credit and hit the job market, so this is not necessarily a trend that will continue. While all young adults should be careful and responsible with credit card debt, the recent Fed report should be more of a precautionary tale than the harbinger of an all-out crisis.
Headquartered in Atlanta, Georgia, National Credit Systems is a third-party collection agency that operates independently. Initially founded in 1991, the agency specializes in recovering money for apartment owners and managers that is owed to them by consumers who have failed to fulfill their lease obligations.
If you happen to be someone who is on the receiving end of round-the-clock phone calls and aggressive letters urging you to pay owed funds to National Credit Systems, it’s essential first to educate yourself on your consumer rights. A common mistake that consumers make is to pay off their debt in collections, believing that this, in turn, will improve their credit standing.
According to FICO, the scoring system used to determine your credit score, having collections added to your credit report can negatively impact your credit score, docking the number by up to 100 points. It’s logical to think that by paying off collections, it’ll be removed from your credit report. However, the collection listing will remain on your credit report, changing from an owed item to a paid collection.
Showing something is paid is good, right? In this instance, it can work against you, acting as a negative listing and damaging your credit score. What’s worse, is the belief that ignoring debt collections altogether will make them magically disappear. More often than not, outstanding debt collections can wind up escalating to a lawsuit.
This means National Credit Systems has the authority to slap you with a lawsuit for owed money. Should this happen to you, it could lead to a judgment that causes asset seizure, wage garnishment, and liens placed against you. And make no mistake, the judgment will be filed on your credit report and basically annihilate your entire credit score. To avoid a lawsuit and ensure you are fully aware of your rights as a consumer, here are four things you need to know.
Make an Account Validation Request
When faced with National Credit Systems debt collections, the first thing you want to do is make an account validation request. Your request, which is asking for proof that this debt belongs to you, should be sent in writing using certified mail. Under the Fair Debt Collections Practices Act (FDCPA) you are entitled to making this request. Once received, National Credit Systems will need to furnish you with evidence that the account does, in fact, belong to you and therefore, they own the collection rights. Should the company fail to provide authentication of your debt, then the legal responsibility to pay owed funds no longer falls on your shoulders. Also, NCS will contact credit bureaus to have the collections listing removed from your credit report.
What happens if NCS does adequately validate your debt? The next step requires you to carefully examine the documents they provide and locate the last activity date recorded with the lender. Per the statute of limitations, a majority of consumer debt must be collected within a seven-year time frame. Confirm the laws for your state to ensure you know the exact number. This way, if debt collection agencies are attempting to re-age your account in an attempt to collect payment, you can exercise your consumer rights and prove that funds are no longer legally owed.
You’ve validated your account and confirmed it’s within the legal time limit. Now, you’ll want to begin settlement negotiations with NCS for your collections account. As a best practice, your negotiation should always focus on paying less than the total balance listed. For example, if they claim you must pay $600, it’s likely you settle your debt for less. It’s typically recommended that you negotiate a settlement payment between 10% and 40% of the entire balance owed.
A crucial part of successfully negotiating with National Credit Systems is to establish an agreement that you’ll remit payment in exchange for NCS agreeing to cease all reporting to the credit bureaus. This is a critical part of your settlement negotiation because without doing so, the collection listing will remain on your credit report and continue to damage your score. The collection listing needs to be removed, rather than just updated to a paid collection on your credit report.
Disputing Errors on Your Credit Report
Due to the Fair Credit Reporting Act (FCRA), you’re entitled to exercise your rights as a consumer and dispute questionable, inaccurate, or erroneous items listed on your credit report. By working with a credit restoration company, like The Phenix Group, you can partner with a credit specialist to dispute and remove all reporting errors on your behalf.
For example, by filing a credit bureau dispute for the NCS collections listing, the reporting bureaus will conduct an investigation to validate your claim. During their investigation, they’ll connect with National Credit Systems for account verification. Since the terms of your settlement agreement require NCS to stop their reports, they will be unable to verify your account, and the item will be removed from your report. Taking these types of steps will help repair poor credit.
Many collection agencies take advantage of consumers, violating their rights because they assume consumers aren’t knowledgeable about these laws. Cleaning up your credit report is incredibly important for maintaining a healthy financial standing. Seeking assistance from a qualified and trustworthy credit repair agency is the most effective way to ensure negative items are removed from your credit reports.
According to the 2018 Identity Fraud Study conducted by Javelin Strategy & Research, there were 16.7 million cases of identity theft in 2017, which is a “record high” according to the report. The study also says fraudsters have been able to reel in more and more victims despite the efforts to combat identity fraud. Last, identity theft has led to the amount of money stolen to rise to $16.8 billion.
And if you think the odds are in your favor, think again. In 2017, approximately 1 in 15 people were victims of identity theft. There’s a chance you’ll be affected by identity theft in your life, and when it happens, it can ruin your credit and make your life a living nightmare.
In this article, we look at how identity theft ruins credit, how to fix it and what you can do to protect yourself.
How Identity Theft Happens
In a nutshell, identity theft happens when a thief gains access to your personal information, such as your name, social security number, bank account information, or credit cards. Once they have access to this information, they can open lines of credit in your name, make purchases on compromised credit cards, and even claim your tax refund. The way people do this varies on a case by case basis.
Sometimes, thieves can go through your trash to piece together all the information they need to steal your identity. Sometimes they steal your mail. In other cases, thieves use a tactic called phishing, which is a technique in which they send you an email that looks like it’s from your bank or other trusted institutions asking you to update your username and password, but in reality, it’s a way to get access to that information.
How Identity Theft Ruins Your Credit
The primary way in which thieves ruin your credit score is by making purchases in your name and then not paying for them. If you already have less than perfect credit, this damage might take years to fix, and might make it difficult or impossible to get credit. Even when the theft is found and reported to the proper credit agencies, victims still face an uphill battle to repair their credit.
When a thief makes purchases in your name and then doesn’t pay, not only do the late payments show up as a negative on your credit report, the account will surely go to a collection agency, which is another ding. It’s not uncommon for people — even with good credit — to lose 100 points or more when they’ve become victims of identity theft. Lastly, the victim is usually not aware that someone has stolen their identity until it’s too late. When these fraudulent debts go unpaid for a specific period, the creditor may sue the victim. You can fight this in court, but that involves legal fees and a tremendous amount of time.
How To Fix The Problem
The first course of action is to contact your credit card companies and your bank the minute you suspect someone has stolen your identity. Tell them what happened and begin the process of working towards a solution.
The next step is to close the accounts that have been opened in your name and have cards reissued for any accounts you believe to be compromised.
Another step to take is to put a freeze on your credit by using what’s called a fraud alert. This alert lasts for 90 days and it forces lenders to take additional steps to verify your identity before they’ll let you open a new account. If the damage is more widespread, you can ask for a credit freeze, which makes it so no one can access your credit report, which means no one can open any new accounts in your name.
Also, it’s essential you be vigilant and dispute all suspicious charges with your creditors.
Sometimes, the damage to your credit may be so severe and complex, that you need to use the credit repair services of a specialized agency that helps repair credit that’s been damaged due to identity theft. There are many online companies you can choose from or you can opt for a law firm that specializes in this work. Getting the help of an agency might be the way to go because it takes the hassle and burden off your shoulders and can often get better results than if you were to go it alone.
How To Protect Yourself
To better guard against identity theft, here are a few things that you can do to reduce your risk.
- Use Strong Passwords For Online Banking
- Avoid Clicking Links Sent To You Via Email That Ask for Personal Information
- Monitor Your Credit Report
- Shred Personal Documents Before Throwing Away
- Never Give Out Personal Information Over the Phone
Learning the lingo of the credit world is an important part of keeping yours intact. One of the terms that you should be aware of is “charge-off.” This may seem like a complicated term at first glance, but the true definition of it is quite simple. If you don’t pay off your debt for several months in a row (usually, six), a creditor may label your debt as a loss in their records. This labels your debt with them as a charge-off on your credit report. Having a charge off on your credit report is one of the worst things that you can have and the most irritating when doing credit repair. It signals that you aren’t responsible as a borrower which can influence future creditors against trusting you with their money.
How a Charge-Off Affects Your Credit Report
A charge-off can stay on your credit report for up to seven years. This up to a variety of different factors including when you start paying it off and if it has been passed on to a collections agency. If you have a charge-off, then you’ve probably been dealing with multiple hits to your credit report for a long time. These hits would have come from multiple missed payments. But finally getting a charge-off makes a huge dent in your credit report. Also, if your debt ends up getting passed off to a collections agency, then that’s could affect your credit score as well. If you neglect to pay the collections agency that has taken responsibility for your debt, then that could negatively affect your credit score. Dealing with a charge-off can set off a never-ending chain of events that could deal with a huge blow to your credit that could inevitably take years to recover from.
Even if you pay your charge-off debt in full, that doesn’t mean that your charge-off is going to be wiped off of your credit report. When you pay off the debt, it’ll change the status of the debt on your credit report to “charge-off paid” or “charge-off settled.” This is more favorable than having the charge-off on your credit report, but it’s still going to linger on your credit report for seven years.
Another option that you have is to negotiate with your creditor. They might take the charge-off off of your credit report if you pay the debt in full. If your inability to pay the debt dealt with a life event like jobless or a major medical issue you might be able to influence your creditor one way or another by displaying a pattern of positive payment history before that life event. It’s not a sure thing, but it’s definitely worth a try.
How to Pay Off Charge-off Debt
Contrary to popular belief, getting a charge-off doesn’t mean that you aren’t still responsible for the money that you owe. It just means that the debt is deemed unlikely to collect. Your debt is still going to be owed until it’s paid, settled, or discharged in a company proceeding. Your debt might have been sold to a third-party debt collector after your debt was charged-off. That just means that you’re going to have to get in contact with someone new in order to deal with your debt.
If they haven’t sold your debt to a collection agency yet, then try to get in contact with the original lender. Talk with them about your options which may include introducing a payment plan, paying off the debt in full, or settling it for a lower amount. If they have sold it to a collections agency, be sure to ask for proof beforehand that they have ownership of your debt. Once you have that proof, get in contact with them as soon as possible in order to figure out the best path towards paying off this debt. Sometimes, new creditors won’t lend you out any new credit until you take care of all of your debts that are past due. If you’re planning on acquiring any new debt (home, auto, etc.) then it’s very important that you take care of this debt as soon as possible. Don’t let a charge-off debt take control of your life any more than it already has.
If you have a charge-off on your credit report, it’s not the end of the world. You absolutely should work towards getting that debt paid off and possibly even getting the charge-off taken off of your credit report. But, if you’ve done all you can do, then practice positive credit management (paying your debts on time, monitoring new credit lines, etc.) in the meantime in order to build back your credit score and get your credit fix. The effect that the charge-off has on your credit report will wane in time. In turn, be sure to use your credit responsibly and your credit score will be stronger before you know it.