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What is Debt Validation? – Lexington Law

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Information in this article is not intended to provide legal advice for your individual circumstances and does not create an attorney client relationship with Lexington Law. If you need specific legal advice, contact an attorney in your jurisdiction.

A debt validation (or verification) letter may help you resolve some issues related to collection accounts and potentially minimize the damage done to your credit score.

For example, collection agencies may “reactivate” debt that you might have forgotten about, reporting very old debt again on your credit report. Or they may even try to collect debt that you already paid or that is past your state’s statute of limitations. In these cases, you may want to use a debt validation letter.

What Is Debt Validation?

Debt validation is simply the act of demanding that a credit agency prove that you owe a specific debt. The right to debt validation is protected under the Fair Debt Collection Practices Act.

How to Request Debt Validation

To protect your FDCPA rights, should follow a certain process. These steps help you document that you sent a proper validation letter and whether or not the collection agency responded in a timely manner.

1. Obtain a Copy of Your Credit Report

Obtain a copy of your credit report and highlight the
negative items you want to challenge. Make sure you have a basis for
challenging them. Examples for reasons include that you already paid the debt,
that you never owed the debt to begin with or that the debt is beyond your
state’s statute of limitations on collections.

2. Write and Mail a Letter

Write a letter including the reasons you feel the debt
is invalid. Address the letter to the collection agency that reported the debt
to the credit bureau. State that you’re requesting validation of the debt or
removal of the debt from your credit report. Then mail the letter and request a
return receipt so you have proof that you sent it and that the collection
agency received it.

3. Follow Up With a Challenge Letter

If you don’t receive a validation of your debt and it’s
still on your credit report, follow up with a credit challenge letter. Send
this letter to the credit bureau and include copies of any documentation you
have that disputes that you legally owe the debt. Make sure to note that you
contacted the creditor and did not receive a response to your validation
request, and include copies of the letter and the return receipt as proof.

4. Wait 30 Days for a Response

The credit bureau must investigate dispute letters. It will contact the reporting collection agency and request documentation of the debt. If the collection agency doesn’t provide sufficient documentation within 30 days, the credit bureau must remove the item from your credit report. Continue to check your credit report, even if you don’t hear from the bureau or creditor, to see if the item is removed.

How to Write a Debt Validation Letter

Dealing with collection accounts and agencies can be
stressful, and if you don’t think you owe the debt, you might also be angry. Remember,
it’s important to be as professional, clear and concise in a debt validation
letter as possible. You might need to use this letter later for proof that you
asked for validation of the debt, so you don’t want to complicate the issue or
use unprofessional wording.

Instead, keep it as brief as you can, including only what
you need to for the validation request. That includes:

  • What debt you are writing about
  • That you are requesting validation under the
    FDCPA
  • What information you are requesting
  • That you dispute the debt and request it be
    removed from your credit report
  • Your request that the creditor stop trying to
    collect the debt

Is a Creditor Required to Respond to Debt Validation?

Creditors do not have to respond to every debt verification letter sent to them. Under the FDCPA, if a collector contacts you about a debt, you have 30 days to request validation. If you send a verification request within that time, the creditor is legally obligated to respond to you. However, if you send a letter outside of that time or based on something you see on your credit report, the creditor is not legally obligated to respond.

Some people might tell you that it’s better to simply pay the debt and ask the creditor to delete the item from your report in return. That can in some cases, be an expensive proposition that doesn’t provide any results—especially if you don’t actually think you owe the money. Payment for deletion isn’t an option most creditors can back up because many collection agencies have contracts with the credit bureaus that prohibit it.

How a Debt Validation Letter Can Help

Even if you’re outside of the debt validation window
under the FDCPA, a debt verification letter can still offer some benefits.
First, if the collector realizes that there is an issue with their information,
they might remove the negative item from your credit report. Even if that doesn’t
happen, you at least have documented proof you took these steps, and that can
help you when you try to dispute the information with the credit bureaus.

For more help with staying on top of your credit report and disputing incorrect items, get in touch with the credit consultants at Lexington Law.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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What to Know About FICO’s New Credit Scoring System

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Disclosure regarding Lexington Law’s editorial content.

The Fair Isaac Corporation (FICO) has announced it will be updating its credit scoring system this summer when they roll out the FICO Score 10 and 10T, which together represent the biggest change to the FICO system since 2014. 

The new system is designed to help identify high-risk borrowers by incorporating people’s history of credit behavior, paying special attention to those who use personal loans to consolidate debt but do not pay that debt down. FICO has estimated that about 110 million users will see a change in their credit score under the new FICO 10 and FICO 10T systems.

Here we’ve broken down how the new system works, what effect you can expect it to have on your score and what to do differently under the new system.

What’s Different About the New Credit Scoring System?

The new FICO scoring system allows lenders to incorporate “trended data” that shows how responsibly a borrower behaves with regard to credit. It also adjusts how important certain information is when calculating your score.

Factors weighed more heavily in the new FICO scoring model include:

  • Personal loans, especially those used to consolidate credit card debt
  • Delinquencies, especially those in the past two years
  • Credit utilization ratio
What's different about the FICO 10/10T? They weigh personal loans, history of delinquencies, and credit utilization ratio more heavily.

Will My Credit Score Change?

Though millions are likely to see their scores change as a result of the switch to the FICO 10, not all of these changes will be significant, and some users could even see their scores receive a boost. FICO representatives estimate that about 40 million—with already high credit scores—could see their credit scores increase by a small amount, with another 40 million seeing a decrease in their scores.

Consider these factors and try to predict how your score may change in the switch to the FICO 10.

You’re likely to see a drop if:

  • You’ve had recent delinquencies.
  • You consistently carry a balance on your credit cards.
  • You took out a personal loan to consolidate credit card debt.
  • You’ve maintained a high credit utilization ratio in the past two years.

You’re less likely to see a drop (and your score might even increase) if:

  • You’ve stayed current on your payments in the past two years.
  • You’ve maintained a healthy credit utilization ratio in the past two years.
  • You only put high balances on your credit cards occasionally and pay those balances down quickly.

Note: The FICO 10 will become available in the summer, but that doesn’t mean lenders will start using it right away. Many lenders still use FICO 8 or FICO 9.

What Can a 20-Point Difference Make?

According to FICO, most users whose credit scores change with the new system will see a difference of around 20 points. While that may not seem like much, a 20-point difference can be significant.

Here are three ways a 20-point drop in credit score can impact you:

1. Higher Loan Interest

Depending on where your score started, a 20-point drop can cost you significantly when it comes to taking out a home mortgage or auto loan. For example: On a 30-year fixed rate mortgage of $200,000, someone with a 660 credit score will pay about $18,000 less in interest than someone with a 640.

2. Higher Premiums on Insurance

Credit is also one of the factors that determines the amount you must pay in insurance premiums, and a 20-point difference can be significant there as well. According to insurance comparison site The Zebra, the average difference in annual premiums from “very good” (740 – 799) to “great” (800 – 850) credit is $116.

3. Weaker Loan Applications

If your credit was already on the low side, a 20-point drop may do more than increase your interest and premiums—it can actually disqualify you for a number of applications. For instance, most low-interest mortgage programs (like FHA, VA and USDA) have strict minimum credit score requirements.

Minimum credit scores for various loan programs: 500–579 for an FHA loan at 10% down, 580 for an FHA loan at 3.5% down, 620 for a VA loan, 640 for a USDA loan, and 680–720 for a jumbo loan.

How Can I Keep My New Credit Score Up?

Best practices for keeping your credit score healthy will remain unchanged even after FICO rolls out its new system. However, certain tactics will be more powerful than others using the new FICO calculations.

Here are three key tactics for maximizing your new FICO score:

1. Keep Detailed Financial Records

The new credit scoring system weighs the last two years of debt balances, so it’s important to have accurate records on all of your lines of credit going back at least that far. Keeping pristine records of your debts is the first step to identifying and solving any problems or discrepancies. 

2. Pay Credit Balances Early in the Month

Even though it amounts to the same as paying your bill once a month, paying your credit balance twice a month or even once a week can improve your credit score. By preventing your credit balance from ever getting too high throughout the month, you lower your credit utilization score, which is weighed heavily under the new system.

3. Sign Up for Boosted Credit Services

Alternative credit models like UltraFICO and Experian Boost raise users’ credit scores by incorporating “extra” data, like utility bills and rent payments. If you’re not enrolled in one of these services and you’re concerned about your score taking a plunge following the FICO 10 rollout, signing up could offset any negative impact caused by the new model.

Bottom Line: Good Financial Habits Are Always a Good Idea

When it comes down to it, good credit habits are essential, and none of the changes being made as part of the FICO scoring update are revolutionary. The same positive financial behavior that resulted in a great score with the old system will prove successful using the FICO 10 as well. 

However, those who stand to be most impacted by a 20-point change in their score—like anyone whose score is currently on the cusp of two different credit categories—may want to use this information to strategize how best to protect their score from changes. There are a number of ways to work on improving your credit health that range from simple tweaks to long-term changes to your financial habits. It’s always a good time to start prioritizing your financial well-being!


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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How to Negotiate With Creditors

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Disclosure regarding Lexington Law’s editorial content.

If you are dealing with calls from debt collectors,
getting notices for overdue bills you still can’t pay or have old debts you’d
like to settle to help clean up your credit report, you may be able to take
action. Many people don’t realize that all debts aren’t written in stone, and
you may be able to negotiate with creditors to move your finances in a more
positive direction. Here, learn how to negotiate with creditors and when it’s a
good option to try.

When Should You Try to Negotiate?

Negotiating with a creditor usually involves trying to get them to accept a debt settlement. This means that you agree to pay a portion of the debt instead of the full amount, and the creditor accepts this. Creditors are sometimes willing to agree to these arrangements because they know that an account already in collections is less likely to be paid, and they would rather have some money than none at all.

Working out a debt settlement can help you get current on
accounts again or help you pay off old collection debt. However, there are some
things to be aware of.

Successfully negotiating a debt settlement doesn’t make the debt go away completely. It will still show on your credit report until it ages off after seven years, and even if the creditor marks it as paid, the negative payment history can still affect your credit score. In some cases, starting to make payments on the debt again as part of a settlement agreement can also restart the statute of limitations on the debt.

In addition, you need to be prepared for possible tax consequences. In most cases, when you successfully get a debt lowered by $600 or more, your creditor will send you a Form 1099-C. This means that the amount forgiven is considered income and can add significantly to your tax bill.    

10 Steps for Negotiating With Creditors

Attempting to negotiate with creditors can be
intimidating, but it doesn’t have to be. Use these 10 tips to help you prepare
a plan, handle the actual negotiations and be ready to follow up as necessary.

1. Be Honest

It’s important to be honest as you negotiate with creditors. Saying you can make payments that you’re not able to follow through with or overexaggerating financial problems can make the situation worse. It can also make it more difficult to work together with the creditor for a mutually acceptable solution.

When you’re negotiating with creditors, know exactly how
much you can pay and when. Be clear and factual when explaining factors, such
as a furlough or layoff, that may have contributed to the issue.

2. Stay Calm

It’s normal to be frustrated, worried and even angry if
you’re in a position where debt collectors are calling, but it’s important to
stay calm and professional when interacting with creditors.

For example, if you’re trying to get a creditor to remove a late payment from your report, you may remind them that you haven’t missed a payment before. Then, you can let them know that you were injured and unable to work for a few weeks, but you’re back to work now and future payments won’t be a problem.

Getting emotional can also indicate to creditors that you
are in a desperate situation, and some may try to capitalize on this by being
unwilling to negotiate or saying you have to make a payment before you’ve
gotten the agreement in writing.

3. Have Cash Available

When you call a creditor to try to negotiate a debt
settlement, it’s important to have the cash available right then. You’ll still
want to wait to make a payment until you have the agreement in writing, but
many creditors can send this via email instantly, which means you’ll need to be
ready to pay right then and there.

Instead of giving creditors access to your banking
information, consider using a prepaid card to make your payment or do a wire
transfer.

4. Present a Plan of Action

Any time you’re trying to negotiate with someone, it’s
important to know exactly what you want out of the deal and what you’re willing
to give. Going into the negotiation with a plan shows the creditor that you’re
serious about trying to settle, and it provides an instant starting point so
you can get to a resolution faster. Knowing what you want also helps you stick
to the plan if the creditor tries to get you to pay more or accept different
terms.

5. Ask for Modified Loan Terms

In some cases, you won’t be able to negotiate for a debt settlement. The creditor may be unable or unwilling to accept the settlement offer or it may be something like a mortgage or student loan that is difficult to forgive. In these cases, you can still try to negotiate certain aspects, such as interest rates or minimum payment amounts, or ask for a forbearance to help give you more control over your financial situation.

6. Cover Worst-Case Scenarios

There are times when negotiations aren’t possible
because you don’t have the money to pay. In these situations, the best thing to
do is be honest with the creditor. Let them know that you want to pay but can’t
and that you probably won’t be able to pay in the near future either.

If bankruptcy is an option, it may help motivate the
creditor, as they would rather get a little bit of the money than lose it all
under the protection of a bankruptcy. They may be willing to accept a small
amount at that point instead.

7. Be Persistent

Creditors are notoriously difficult to negotiate with,
and you may have to offer your plan and refuse to settle for less several times
before they finally accept. Continue to be honest, courteous and matter-of-fact
in all of your interactions, and don’t be afraid to call back and try again if
the creditor refuses to negotiate the first time.

8. Keep a Record

Always keep written records for every communication you
have with a creditor. Record important details like the date, time and length
of the call, the name of the person(s) you spoke to and general notes on the
conversation.

9. Practice Follow-Through

This ties into the first point, but when you’re dealing
with creditors, it’s important to always follow-through with what you say you
are going to do. If you set up a payment plan, make sure to actually make the
payments as promised. Creditors deal with people facing financial difficulties
and strain on a daily basis, and they may be more willing to negotiate with
those who are taking steps to help themselves.

10. Get Professional Help

While you can do everything that a credit counseling agency
can do, this doesn’t mean you should. Dealing with creditors requires a great
deal of time and energy when it comes to making phone calls, dealing with paper
trails and keeping records of who said what when. A professional company or
attorney can sometimes help take some of this burden so you can focus on
continuing to work toward a better future.

What If
Negotiation Doesn’t Work?

While negotiating with creditors can help in many situations, there will be times when it doesn’t work. Whether the creditor refuses to negotiate or your financial situation is dire enough that negotiations aren’t going to actually make a difference, there are other debt relief options, such as bankruptcy, that you may want to consider. Filing for bankruptcy is very serious and is usually considered a last-resort option. If you think that your situation may require filing for bankruptcy, make sure to talk to an experienced bankruptcy attorney who can discuss the details of your case and advise you on which type of bankruptcy is best for you.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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How To Handle Your Finances If You Lose Your Job

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This is a guest post written by Nicole Booz of GenTwenty.

Losing your job can feel very discouraging emotionally, but it can also be a stressful time if your job was your primary or only source of income. You will need to make almost immediate changes in your financial life until you are able to replace that income stream and get back on your feet.

Becoming unemployed in itself does not impact your credit but that lack of income can lead to behaviors that, in turn, can negatively impact your credit. A loss of income increases your debt-to-income ratio (DTI) which can play an undesirable role in your financial future if you allow it to remain high and don’t take action. Whether you have an emergency fund or not, these are steps you should take immediately once you’ve lost your income to help put yourself in a better position in the future.

Steps To Take With Your Finances If You’ve Lost Your Job

1. File for Unemployment

Unemployment insurance can help you bridge the gap until you are able to find new employment. Each state has its own program that administers unemployment benefits differently as well as its own requirements for receiving unemployment benefits.

Your unique employment monetary benefit depends on a variety of factors, including but not limited to, how much you used to earn. The way the benefit amount is calculated varies from state to state and is not a predetermined amount. 

Unemployment benefits are not guaranteed so be sure to check with your state’s unemployment office on what qualifies you for benefits. You can usually find this by searching Google for “[state] unemployment benefits.”

You may also qualify for SNAP (Supplemental Nutrition Assistance Program) or federal subsidies for health insurance so be sure to check with your state’s requirements for those programs too.

But do start job hunting again as soon as possible. Your unemployment benefits are meant to help you cover expenses until you are able to find new employment, they aren’t there to replace your income for long periods of time.

2. Evaluate your Budget

If you don’t already have a budget and a list of your expenses, now is the time to make one. With a reduced income, you’ll want to make sure you know exactly where your money is going to. Every penny counts. 

Start by pulling your past 3 months of credit card and bank statements. Categorize all of your expenses, whether in a spreadsheet or by hand into categories:

  • Fixed expenses (mortgage/rent, car payment, internet bill, utilities, cell phone bill, insurance bills, student loan payment, etc)
  • Variable expenses (groceries, dining out, gas, etc)

From your list of fixed expenses, which ones are completely necessary to pay for? These include things such as your rent/mortgage payments, your car payment, student loan payment, insurance, etc. Anything that is a debt, secured or unsecured, should be prioritized. Consider these things as essential.

For your fixed expenses, call your providers and try to negotiate a lower rate. You might be able to get a better deal on your cell phone plan or your internet bill just by calling customer service and inquiring about new packages. Be sure to emphasize your loyalty to the company and ask if they are running and promotions. 

Next look at your fixed expenses that are recurring payments but are not debts. For example, this might include your Netflix subscription, a monthly/quarterly subscription boxes, and DoorDash or similar delivery services. These services can likely be cut out of your budget until you are able to find employment again and have your extra income back. Immediately pause or cancel those subscriptions so you aren’t paying for unnecessary or unused services. 

I also want to note that you might want to check your statements from a year ago too. Make sure you aren’t going to be charged for any annual memberships in the next couple of months that might take you by surprise. 

For your variable expenses, it’s unfortunate but temporary that you will most likely have to reduce your discretionary spending significantly until you are employed again. This doesn’t mean that there aren’t budget-friendly ways for you to have fun, but anything like shopping trips, extra dining out, pampering activities, etc. can be cut out for a couple of months until you are employed again.

The truth is it’s hard to say how long you might be unemployed for so if you do have extra money left over once your bills are paid, put that into a savings account for future months.

3. Make as Many Debt Payments as Possible

During this period of unstable income, you’ll want to keep prioritizing your debt payments. 

Secured debt (your mortgage or car payments for example) offers an asset as collateral which you can lose if you don’t make the payments. You want to avoid something like a foreclosure or repossession so you’ll want to prioritize those payments.

If you are carrying credit card debt, it’s better to make the minimum payment than to make no payment at all. When determining your budget for the next few months, make sure you are factoring in at least your minimum payment for each of your lines of credit. 

If you are unable to make even your minimum payment, contact your lender as soon as possible. While it will vary lender to lender, they will be able to discuss your options with you and hopefully help you through this challenging time.

Your payment history makes up 35% of your credit score so not making your payments on time can have a significant impact on your credit score. A lower credit score can have a negative impact on your financial future because it can keep you from being approved for a mortgage and can lead to higher interest rates which means you’ll be paying more in interest over time.

4. Avoid Relying on your Credit (If you Can.)

On a similar note, you’ll want to keep your credit utilization ratio as low as possible. Your credit utilization ratio is how much of your available credit that you are using, and this number makes up 30% of your credit score. 

You can calculate this number by dividing the amount of credit you are using by the amount available to you. For example, if you have $10,000 worth of credit available to you and you are carrying $3,000 on your balance, your ratio is 30%. 

Keeping this ratio below 30% will have less impact on your credit score than a higher ratio. You can decrease this ratio by paying off debt but you will want to keep it in mind while you are unemployed because you don’t want to end up relying on your available credit to carry you through the loss of income.

5. Avoid Applying for New Credit Cards

In a loss of income situation, it can be tempting to apply for a new credit card or line of credit to help you cover more expenses. But this is inching into dangerous territory because it means you are going to end up in more debt.

Opening a line a of credit when your DTI is high likely means that you will have high interest rates, which in turn, means you’ll be in more debt over time. Doing this means the financial impact of your unemployment will stretch father into the future than it needs to.

Remember, your current situation is only temporary. A job loss can be challenging to handle emotionally and even more challenging financially. With a plan and smart spending, you’ll get through this period of financial turmoil. If you have questions about your credit, contact the credit repair consultants at Lexington Law for more information.

About GenTwenty

GenTwenty provides budgeting, self-care, career development and other resources to readers. Nicole Booz, the writer of this article, is the Editor-in-Chief of GenTwenty.

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