While I don't dispute that all this information is what is reported, as someone who experienced his own financial meltdown, I got quite an education from the School of Hard Knocks in how this system works.
Simply put, the short version is these numbers are probably incredibly inflated by creditors and debt collectors will in excess of what’s actually owed. A long explanation follows.
First, the creditors don't do themselves any favors, they simply do not work with you at all and they set this whole thing up for failure. I literally had someone at Discovercard tell me I should just continue to default until it went into collections, only then could I actually try to reach a resolution or negotiation stage.
I understand why this is so, the debt collector will offer a simple up front payment for the whole account, and it's easier to sell off the debt in lots and have a consistent recovery. But this creates some ridiculous results, which I will elaborate on presently.
Debt collectors act in a manner which is not conducive to accomplishing the goal of getting the debtor to satisfy the debt to the highest degree possible. They are deceitful, unlawful and unethical and I would be so bold to make this a universal declaration. However much you might want to honor your commitment, you simply cannot work with people like this, they are more interested in duplicity for its own sake than any business purpose, and it baffles me this industry persists in such a manner when it could be done sustainably and ethically as a legitimate service.
As an example, if you work out a tentative proposal or deal with these people, then they will say let us review this and call you back. When you speak to them again they suddenly have no recollection, the person you talked to doesn't exist, you are a liar, etc. Over and over again they will iterate this as many times as you will humor it, just to elicit maximum frustration and stress. But you stop communicating with these people like any sane person would after two or three cycles of this, it is fruitless. They're clearly not reliable or serious.
The effect is, the amount you owe will gradually make its way to the credit reporting bureaus. Now eventually, and I stress eventually, you will get that 1 in 100 person in the debt collections industry who isn’t a colossal assclown who will actually be interested in doing his job. But this person, or more likely his employer, will still screw you.
What happened to me and so many others is say you owe $10,000 legitimately. Well, when you stop making payments, after about 3 months $10,000 magically inflates to about $18,000 or $20,000 using a schedule of fees and charges that does not trace to any document you ever personally signed, nor does it mathematically tie to any formula or rate they can supply you. This is usually done by the creditor so when they sell the debt, they can charge more. It also helps the debt collector, as I’ll explain.
The creditor will stonewall you as I discussed previously. The debt collector, once you get one that’s somewhat interested in actually doing their job, will say “Well you owe twenty grand, but I like you, I’m going to knock it down to about twelve thousand, but I think we can work it down a little more.” Gosh isn’t he a nice fellow, cutting you a break like that?
One of two things will happen.
1) The collector will not negotiate any further and the conversation will end with them telling you they’re filing a lawsuit. They never do. They just sell it to someone else, so this will repeat until 2 happens.
2) So you’ll back and forth and hem and haw and eventually you’ll agree to something like I will pay you the original ten thousand dollars spaced over 5 years or whatever, but you have to report that this is payment as we agreed and they will say sure, yes, we accept that. And you get this set up and you think well I messed up, but I’ve honored my commitment and we came to a resolution and I am going to put this behind me and be a better person.
Except after about three months into this, you pull your credit report, and guess what? Not only are they still calling you delinquent on the account, the repayment plan itself is also a strike against you. This is not what you agreed to yet there it is. Also, you realize you now have two strikes, both the fact you reneged and the fact you settled the debt, so you would have been better off to just renege and let it go. Doing the right thing results in more punishment.
So you get to fight that for several years constantly having to track which bureau believes what. Also, all the burden of proof is on you, all the debt collector has to do is say “Nope it’s this way” and send the bureau a thicker pile of paper than you sent (the veracity and appropriateness of those documents vs. yours is beside the point), and that’s how it is again.
Now that’s not the best part.
The best part is about two years after you finish paying this off, you get a letter.
This letter points out you owed 20 grand and settled for 10 (with no mention you originally only owed the ten), so they are here to collect the other 10 grand you owe, plus five years of interest and late fees they are attaching based on no rate, formula or numbers they care to give you (how the hell can you do that if you’re not even the original lender but never mind), so you now owe like 25 grand, but they are willing to make a special offer to you to settle for 10…
I am willing to bet if you settled for 10, they would be back in a few years to collect the other 15…
But you don’t fall for it. Of course you ignore it because the debt is well past the statute of limitations at this point, and you’ve been lied to so many times you know better by now than to even try. Also by this point you’re quite educated in the process and the legalities and you know they have no right or power to do this. They can send you letters all day and you can ignore them all day, except you keep the most recent one always because when you appeal to the credit bureaus to take it off after the requisite 7 or 10 years you are going to supply a copy of that amount they are claiming and point out it doesn’t match your report to strengthen your case the item is inaccurate.
Eventually, it comes off, if only because each layer of lies and debt transfers makes their written case deteriorate. The debt collector eventually has no paperwork of their own to bury yours in; remember before it was a contest of who submitted the thicker packet of paper, now it’s your turn to win.
The end lesson, if you want people to act as honorably as possible and honor their commitments as much as possible, don’t funnel such matters off to people who are far worse than the negligent debtors they so vocally assert their moral superiority to. Also, credit reports, when you start looking at how they work, actually don’t make a lot of sense or tell you anything meaningful about people because they are full of garbage.
I am not an expert on credit, at all, but I got my score from 550 to 726 after my personal financial meltdown so I’m not exactly stupid about how this system works now either. There is no way I deserve a 700s score, I don’t consistently use enough credit to merit that, yet I have it because I’ve figured out the simple things you need to do to manipulate the system. And I can tell you it is FUBAR. Fair Isaac is the biggest load of nonsense imaginable.
I am not inherently opposed to a credit bureau or debt collectors, but until the former has to completely disclose all of their internal workings and methodologies and the latter decides to grow up and act like adults, I say get yourself together, and then game the hell out of this system.
I have one zombie debt left, this year I should be able to get rid of it. It has been six years since it was legally collectible but it appears I owe this amount, which is inaccurate and overinflated. I have the proof, I am just waiting one more month so I have the strongest case possible when I contest it.