06/27/2011 05:38 pm ET Updated Aug 27, 2011

How Debt Collectors Play Unfair

Like it or not, your credit score is hugely important.

One expert told me that even small differentials in credit scores can -- over time -- create large differences in net worth. Since a credit score will affect the cost at which you can borrow money (the interest rate), over a period of years the difference in interest rate will have a major impact on your disposable income and thus your assets.

It is well known that the #1 way to maintain a good credit score is to pay your bills on time.

Credit experts also know that your score is heavily weighted toward RECENT payment history -- a debt or late payment that is a few years old, for example, affects your credit score much less than any such event within the preceding six months.

But, here is where you can get tripped up (unfairly so):

Let's say that on January 1, 2010 John Doe owed ABC Bank $1,000 and made a decision that he could not pay the debt. For about a year, that non-payment will have a big impact on John Doe's credit score.

Now it is January 1, 2011 and that debt is a year old. ABC Bank sells the debt to DEF Collections for $.10 on the dollar. Now here is the RUB: DEF Collections reports the debt to the big three credit reporting agencies -- such that it appears as a NEW debt/non-payment.

DEF Collections should not be doing that but the laws are not clear enough and enforcement is very spotty. The upshot to John Doe is a new CURRENT hit on his credit report and thus a big SMACK on his credit score.

If John Doe is aware of what is happening, he can make a claim to the credit reporting agencies and they should remove the DEF claim. But, there is most often a big gap between what happens, and what consumers know or do.

So, if you are being chased by a collection agency, check your credit report to ascertain whether any old debts are showing as NEW debts and thereby unfairly impacting your credit score.

Jim Randel is the founder of Rand Media Co. and the primary author of The Skinny On Book series. His latest publication titled Street Smarts teaches 125 critical life skills that are not traditionally taught at universities.