Bullying collectors love to intimidate consumers by telling them their debts will tarnish their credit report and ruin their rating for years, and may also threaten to spread the bad word to your mortgage bank or other lenders. Sometimes they even pose as credit bureau employees to make themselves sound more official. Or they make nice and promise to clean up your report if you pay up pronto. Legitimate debts that go to collections do become part of your credit history, but you don't have to take the rap for ones you're not responsible for. Once you file a dispute with the agency, it must report that to the credit bureaus. If you receive verification that the debt isn't yours, you need to notify all three national credit bureaus in writing and ask them to correct your records. For help on disputing credit report errors, go to ftc.gov.
If you do owe money, never make a payment on an old debt until you verify that the statute of limitations—typically seven years—hasn't expired. "In many states a new payment will restart the time period," says Hibbs. "That means you'll be responsible for the whole debt, no matter how ancient." But if the debt is valid, try negotiating. Chatzky advises offering to pay 50 percent if it's a recent debt, and 25 percent if it's several years old. "Some collectors have paid a pittance for your debt, so they're not interested in spending a lot of time getting the money," says Chatzky. "As a result, they'll often settle for far less than you owe." Finally, go to AnnualCreditReport.com once a year to view your record (it's free) and update it as needed so that it reflects any debts you've settled.