Collections accounts on a credit bureau will seriously harm a borrower’s ability to access funds from banks. They show an unwillingness to pay, and in some cases, a history for leaving banks with losses on their investments into a consumer loan. However, there are a number of situations where a borrower might have a collections posted to their account that is not even their fault. Because of the severity of such an event, a borrower with a collections on their account needs to understand when it is that a loan account that is on their profile is their responsibility, and when it is that they should be following up on an account to have it removed from their profile, because of the way in which the loan is actually the responsibility of a third party.
A credit bureau can report a collections account that belongs to a third party on a person’s bureau in a variety of situations. Most commonly, customers that have co-signed for a loan, applied jointly for a cell phone, or been included in a residential lease will all see themselves listed on the credit report as being equally responsible for the obligation in question. This means that a co-signed loan is equally as much your responsibility is it is for the primary borrower, even if the primary borrower is the one that will be making all of the repayments. This becomes even more complicated when dealing with things such as cell phone bills or rental leases, where a signor might disassociate with the product of the agreement (ie. The phone or the property), but still be obligated to ensure its repayment.
One of the most frustrating collections accounts that can appear on a credit bureau is on from a property management company that arises from delinquent rent payments. While it is important for a renter to pay their landlord, what happens when that renter leaves the property? More importantly, what happens when one tenant leaves, and a room-mate stays behind? Not many people realize that leaving a rental property without properly breaking the lease can result in a collections account, because of the way in which the landlord can write-off the missed obligation as being a default on the contract.
More importantly, when more than one person is listed on the lease, each of these renters is equally responsible for the repayment of the rent owed. This often becomes problematic for renters that leave the agreement early, but are not taken off of the lease agreement. If the room-mates forego to make rent payments after the original tenant has left, the default on the payments will actually be reported on everyone’s credit bureau, regardless of whether or not they are still living in the unit. The end result is often that borrowers that have dissociated with a lease will wake up to find a collections account for that particular rental payment because their former room-mates refused to make payments afterwards.
A similar situation as a delinquent lease will often occur as a result of a cell phone package that is jointly subscribed to. Even though the individual parties involved will pay separate bills to the cell phone companies, the service provider will often be providing the package jointly, meaning that a single person defaulting on their payments will result in a collections account for both parties.
When faced with a situation where a borrower finds that a third-party’s collection account has been posted to their bureau, they are unfortunately only faced with two real courses of action: firstly, the borrower can simply pay off the obligation on their own, and close out the collections account right away. Alternatively, the borrower can pursue the third party (ie. The former room-mate) for the funds owed, and come to an agreement with them to clear up the account in accordance to how much of the default was their fault.