Hounded by Debt Collectors

I recently checked my credit report and found a $104 collection account dating from July 2006 for an unpaid utility bill. Xcel Energy claims I owe $86 from 2001, when I was in college, but I was never notified. This has knocked 100 points off my credit score. What can I do? -- Jon Hilsendager, Bloomington, Minn.

You may have to bite the bullet and pay the bill. That will at least get the collectors off your case -- but unfortunately it won't help your credit score. "Having a collection account on your credit report is statistically significant for predicting future delinquency," says Craig Watts, of Fair Isaac, the company that compiles the FICO credit score. "What you do later on with that account doesn't change its significance to the scoring formula."

Your score should gradually improve if you pay your bills on time and keep your credit-card balances low. But if you feel Xcel did not make a good-faith effort to contact you, you can try to boost your score by having the collection account removed from your record. Ask the company for a copy of your payment history that specifically records where the past-due notices were sent. Or ask the consumer-affairs office at the Minnesota Public Utilities Commission to intercede on your behalf.

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One positive note: Under federal law, negative items must be removed from your credit record after seven years. For accounts in collection, the clock starts 180 days after the original account was first delinquent, says Watts. Because your original bill was from 2001, the black mark should be removed by about 2008.

What if I hire a crook?

I would like to invest with a financial adviser, but the one I've contacted wants to manage either all of my money or none of it. What if he turns out to be a crook? -- J.W., Washington, D.C.

Outright fraud by financial advisers is rare. But you could have the misfortune to hire someone like Bradford Bleidt. In 2005, Bleidt, an adviser in Massachusetts, was convicted of defrauding his clients of more than $27 million. To conceal his swindle, Bleidt, who was sentenced to 11 years in prison, issued false account statements to his clients.

Check your adviser's background at Finra.org, and then insist that he establish an account at an independent institution (typically a brokerage) to hold your money. Never write a check directly to the adviser -- only to the custodial institution, which must send you quarterly statements. Meet with your adviser at least once a year to review your account.

Effects of credit counseling

I am considering going to a credit counselor to help straighten out my finances. Would that affect my credit score? -- W.H., via e-mail

Using a credit-counseling agency to set up a budget doesn't affect your FICO score. Fair Isaac ignores references to credit counseling in your credit report because many consumers seek counseling before they run into trouble, says Watts.

If you sign up for a debt-management program, most counseling services don't report that, either. A creditor may report, however, that the debt is being repaid with reduced payments or reduced interest. That could lower your credit score, says Watts, "if the account is reported as some version of 'not paid as agreed.' "

But such a program can be a good move in the long run if it helps you avoid worse trouble (see Live Debt-Free). "The most important thing is not to miss any payments," says Maxine Sweet, of the credit bureau Experian.

Thanks to Tom Anderson for his help this month.