Debt parking occurs when a debt collector or creditor reports debt to the credit bureaus without confirming the legitimacy of the debt. It could be an old debt, one acquired as a result of identity theft, or perhaps it’s just an error.
When an unpaid debt is reported to the credit bureaus this can negatively impact your credit score. If you’re unaware of the debt and don’t take action it can sit for an extended period of time further damaging your credit.
The experience of debt parking can feel very frustrating and can have serious financial consequences.
Here’s what you need to know about debt parking, how to prevent it, and what to do if it happens to you.
Consequences of Debt Parking
The main consequence of debt parking is the negative impact it has on your credit score. Your credit score is used by lenders, landlords, and even some employers to determine if they want to extend a loan, rent you an apartment, or offer you a job. If they see that you have unpaid debts on your credit report, this can act as a red flag and can have real-life consequences.
When it comes to debt collection, there are rules and regulations in place to protect Canadians. When you owe a debt, the financial institution should contact you and inform you of the details of the debt, including the amount and type. They should identify who they are and why they are calling about the debt. This gives you the opportunity to verify whether the debt obligation is yours or if there is an error.
In a debt parking scenario, you aren’t given the opportunity to confirm or challenge the legitimacy of the debt. Instead, you are surprised to find your application for credit or a loan is denied because of your credit score. Only then might you review your credit report to find an unexpected debt.
How to Prevent Debt Parking?
A proactive approach to prevent a debt parking scenario starts with regularly reviewing your credit report. This can help to identify any inaccuracies early on. Your credit report is an overview of how well you manage your credit. A high credit score indicates you’re likely to repay your credit. A low credit score suggests you might struggle to make your payments.
When reviewing your credit report look for any errors and inaccuracies. For instance, is there a payment you made on time that is marked as late? Is there a debt that you don’t recognize? Is there an account that you never opened? Some of these issues could indicate something more serious is going on, like identity theft.
You can access your credit report online for free from either of the credit agencies – Equifax or TransUnion. Both credit bureaus update your report monthly. You can also request your credit report by mail, over the phone, or in person.
What to Do If You Experience Debt Parking?
If you believe you are experiencing debt parking, there are a variety of actions you can take:
Reach out to the creditor
Review your credit report to see which creditor is associated with the debt. Reach out to them directly for more information and to determine if the issue can be resolved.
Review your financial records
Check past bills, bank statements, credit card records, and other financial documents to determine if the debt is yours or if it is there in error.
Contact the credit bureau
If you believe there’s an error on your credit report, you have the right to dispute it. You can submit your dispute to Equifax or TransUnion. The more information (receipts, documents) you have to support your case, the better.
Once you submit your dispute, it’s up to the credit bureaus to investigate. If they find the information is there in error, they’ll update your report for free. In some provinces, the credit bureaus have to send your updated credit report to anyone who recently requested it.
Report it
If you believe you’re the victim of fraud or identity theft, report it to the Canadian Anti-Fraud Centre (CAFC). The CAFC collects information on fraud and scams. This information may be used to assist law enforcement with any investigation.
Get Help With Your Debt
If you have questions about debt or need help figuring out how to get your finances back on track, contact one of our Licensed Insolvency Trustees (LIT). Trustees are debt professionals who have the knowledge and experience to help you navigate any debt solution, no matter how hopeless it might seem. For a free, no-obligation consultation, call us at 1-888-371-8900, or contact us online.
