Did you know that banks and other creditors may continue to list a debt on your credit report even after that debt has been paid? When your credit report reflect a debt that hasn't been paid, your credit rating can drop drastically. In some cases, that poor credit rating can even mean that you will have to pay extra interest in some cases or that you may not be able to obtain credit at all from other lenders.
A new bill proposed by Senator Sherrod Brown called the 'Fair Consumer Reporting in Bankruptcy Act of 2015' would prevent banks and creditors from listing a debt on a consumer's credit report once that debt has been wiped clean with a bankruptcy discharge.
The new bill (if passed) would require creditors to contact the consumer reporting agency once a debt has been cleared. If that debt has been discharged in bankruptcy and is at zero, creditors would have to report the debt as such.
How big of an issue is this? Right now, it's estimated that one in five consumers has an error on their individual credit report. Personally, we think this number is way too low and is actually upward of 50%. This means that there are major mistakes on many credit reports, and even if you think that your debt has been paid and wiped clean, it might not be.
Aside from the fact that you may have a hard time getting approved for a loan, neglecting to report a debt as "zero" may also mean that a consumer will be charged more interest on additional obligations because of their debt to income ratios. Sadly, many consumers do not bother to check their reports after paying off a debt. The new bill would protect consumers that have declared bankruptcy and, therefore, have a right to have that debt wiped from credit records.
In the Meantime
The bill mentioned above has not yet been approved, but there are some things that you can do to make sure any debts you have paid off are reflected on your credit report. First, always check your credit report to make sure that debts that have been paid are accurately reflected on that report.
If you see any discrepancies on your credit report, it is incumbent on you to dispute the debt. Second, keep on top of your credit report by checking it once per year. You never know if the information that is reported is accurate, and it will only benefit you to keep on top of it.