Few things are more jarring than discovering that a claim has gone to collections after being denied credit and seeing a copy of your credit report showing delinquent payments -- particularly when the claim that has tanked your credit score is false and you've received no documentation to allow you to rebut the claim. Do you have any recourse against a creditor who has filed a false claim with the credit reporting bureaus without providing you with notice or an opportunity to respond? What can you do to help restore your credit quickly? Read on to learn more about the laws that can help protect you in situations like this.

What steps must a creditor take before reporting a delinquent debt to the credit reporting bureaus? 

The federal Fair Debt Collection and Reporting Practices Act (FDCPA) governs transactions between creditors and debtors nationwide. While many states have additional consumer protection laws, all creditors are subject to at least the FDCPA requirements when it comes to collecting on delinquent debts. The FDCPA does not require creditors to notify you before reporting a late payment to the credit reporting bureaus, but creditors are required to abide by the terms of the agreement entered into when credit was extended or the debt was incurred. This can mean that if a credit agreement provided that the creditor could report a debt as delinquent after three billing cycles of nonpayment, and the creditor made a negative entry on your credit report after only one billing cycle, you're entitled to have this negative entry removed and could even have a consumer action against the creditor for violating your agreement.

In addition to the individual terms contained in each credit agreement, creditors must wait until a full billing cycle has been missed before making a negative report against you. For example, if you're two weeks late paying a bill, your debt shouldn't be reported to the credit reporting bureaus until you've failed to pay your bill by the next due date. For this reason, any negative credit entries based on debts you paid just a week or two late should be removed.

However, in some cases, the negative mark on your credit report may be entirely false, based on a nonexistent or already-paid debt. If this is the case and you've been financially damaged (including being denied credit or charged higher interest rates), you may have the basis for a civil claim against the entity responsible for the false report. You'll need to consult a consumer protection or commercial law attorney from a firm like FactorLaw to fully explore your options, determine whether your claim is viable and you're likely to recover damages, and decide whether it would be more beneficial to file this lawsuit in state or federal court.

What are your options if you discover a false negative claim on your credit report?

Removing a false (or premature) delinquent claim on your credit report can be accomplished fairly easily. First, you'll need to request a verification of the debt by providing this request in writing to the creditor. Until the creditor provides this verification to you in writing, they can't proceed with the collection process or contact you by phone or email. If the creditor declines to provide verification within a certain window of time, you have the right to have this entry removed from your credit report. If further collection efforts aren't undertaken before the end of the statute of limitations for consumer actions in your state, you'll no longer be legally responsible for this debt.

While this request is pending, you'll want to file a complaint with the three major credit reporting bureaus to let them know you're disputing this negative mark. In some cases, the entry may be preemptively removed or hidden while you're still battling with the creditor, and only re-added if the creditor is able to provide verification of the debt and evidence that you haven't been making regular payments.

The longer a false entry remains on your credit report despite the actions taken above, the higher the potential monetary judgment you may be able to recover from the creditor. Creditors and credit reporting bureaus now have a vested interest in ensuring that the most accurate information is being recorded and the effect on your financial life is minimal.