Removing Collections from Your Credit Report in 4 Steps

What “Going into Collections” Means

Depending on the type of debt owed, collections can affect you in different ways. If your debt is unsecured, such as credit card debt, and you default on your payments with that debt sent to collections, the credit card company would stop trying to collect the debt from you. Instead, the collections company that your debt was sent to, would pursue the debt and try to collect money from you. If your debt was secured, such as an auto loan and you default, then the lender might repossess your car, sell it at auction, and sell the remainder of debt you owe to a collections company. Lenders can collect money from debt in the following ways:

  • Contact you on their own and ask for payment using their internal collection department.
  • Hire a collection agency to try and collect.
  • For revolving debt, such as credit card debt, the credit card company could sell your debt to a collection agency, which would then try to get the money from you.
  • For installment loan debt, such as an auto loan, the lender may repossess the car, sell it auction, and then sell the remaining debt to a collection agency.

The federal Fair Debt Collection Practices Act strictly regulates how debt collectors can operate when trying to recover a debt. For example, they can’t threaten you with imprisonment — or make any other kind of threat,— if you don’t pay. However, they can — and typically do — report the unpaid debt to credit reporting agencies.

How do collections affect your credit?

Most accounts end up in collections after being 120 to 180 days past due. During this time, the original creditor may stop contacting you about the debt.

For many people, renewed collection activity comes as a nasty surprise when their debts are turned over to third-party collection agencies that use aggressive tactics.

When collections on your credit report first show up, you can expect your credit score to drop anywhere from 50 to 100 points, depending on how high your credit score was to start. The reason is that payment history has the most significant impact on your credit score.

In general, the better your credit, the worse the hit will be. Over time, the collection account will impact your credit less and less. Before your account is sent to collections, you should receive a final notice from the original creditor.

It’s best to attempt to make payment arrangements at that time so you don’t end up with such disastrous effects on your credit score.

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How Collections Impact Your Credit Report and Credit Scores

Your credit report is meant to give potential lenders information on how you’ve used and managed your credit responsibilities with both positive and negative information. If you pay your bills on time and keep the balances on your accounts low, your responsible credit behavior will be reflected on your credit report. However, if you’ve paid late or skipped payments altogether, that information will also appear on your report.

Late payments, skipped payments, and collection accounts are all a factor in determining your credit scores. Any kind of negative information can affect your credit scores because lenders see such information as an indication you may not be managing your credit well, such as overspending or falling behind on payments. A low credit score could make it difficult for you to obtain future credit with favorable interest rates and terms.

A late payment on a credit report is negative, and the more recent a late payment is, the greater impact it has. Accounts that get to the collection stage are considered seriously delinquent and will have a significant and negative impact on your credit report.

2. Determine the Account’s Legitimacy

While reviewing the collection listed on your account, make sure the debt belongs to you. If it doesn’t belong to you or you made on-time payments to pay it off, dispute the error to remove the collection from your report.

Disputing the Collection Account

You have the right to dispute any information on your credit report with the credit bureau who has provided that report. Under the Fair Debt Collection Practices Act, debt collectors can face penalties for reporting false information, and credit bureaus are required to report truthful, accurate information. Despite these regulations, credit reports often contain errors for a variety of reasons, including miscommunication from creditors and identity theft. If you find that a collection agency account does not belong on your credit report, you can write a letter to each credit bureau or file disputes online. Experian, TransUnion, and Equifax each offer the option to file a dispute online, but if you choose to mail in your dispute, be sure to send the letter via certified mail and to attach a return receipt request. The credit bureau must investigate the disputed matter, and generally must respond within 30 days. 

How Long Do Collection Accounts Stay On Your Report?

Paid or unpaid collection accounts can legally stay on your credit reports for up to seven years after the original account first became delinquent. Once the collection account reaches the seven-year mark, the credit reporting companies should automatically delete it from your credit reports.

If your collection account doesn’t fall off of your credit report after seven years, you can file a dispute with each credit bureau that lists it on your report.

How Collection Accounts Hurt Your Credit Score

FICO scores are detailed assessments of your financial reliability. They consist of an amalgamation of several pieces of data. FICO categorizes this data into five types: amounts owed (30%), new credit (10%), length of credit history (15%), credit mix (10%), and payment history (35%).

Amounts Owed

It’s not necessarily a bad thing to be in debt if you’re keeping up with repayments. The most important thing is not to be overextended so that you can reliably meet your repayment obligations.

You should be aware of your credit utilization rate: the lower this is, the better. Your rate is the total amount of money you owe divided by your total credit limit. So, if you owe $10,000 and the credit limit of all your cards combined is $20,000, then your credit utilization rate will be 50%. Generally, it’s a good idea to keep your credit utilization rate below 30%.

New Credit

The more accounts you open in a short period of time, the riskier you’ll seem to lenders. New accounts will lower your average account age, which can damage your score. Also, when you apply for a new loan or credit account, lenders run hard inquiries on your credit report—this negatively affects your FICO score, too.

Length of Credit History

In general, the longer you’ve been using credit, the better—as long as your credit history shows prompt payments rather than delinquencies.

Credit Mix

This is a calculation based on the different types of credit you use: credit card accounts, mortgages, retail store cards, auto loans, student loans, etc. Generally, having a variety of lines of credit and keeping up repayments on all of them gives a good impression to lenders and raises your credit score.

Payment History

Your track record of repayments makes up 35% of your credit score—it’s the most important factor. Having accounts in collections will negatively affect this part of your score. The amount by which a collections account will drag your score down depends on how high your score was to begin with.

A score in the 700s will be much more negatively affected by a collections account than one in the 500s. The damage to your score also depends on which scoring model you consult—some newer scoring models don’t include collections accounts that were eventually paid off in the score calculation.

Medical Bills

Debt collectors now have to wait 180 days before reporting an unpaid medical bill to a credit bureau. This gives you an extra six months to receive bills, ensure they are correct, and figure out how you can take care of them before they land on your credit reports.

Also, with the newest version of the FICO score, FICO 9, medical collection accounts carry less weight.

When you receive your billing information from your providers, your first task is to ensure that the information is accurate. Unfortunately, it can be confusing to understand what charges your insurance company should cover and what you’ll be responsible for.

Explanation of Benefits

Review your bill and compare it to your Explanation of Benefits (EOB). If you’re still not sure if you’ve been charged correctly, call your insurance company and get the details of your EOB sorted out.

Once you know the true amount you owe, figure out how you’re going to pay for it. It’s better to call the medical provider directly than ignore bills and have them sent to collections.

You can sometimes sign up for monthly interest-free payments or even ask for a reduction of costs. A balance forgiveness plan helps work with your budget through either regular payments or a lump sum in exchange for a reduced balance.

How long can a debt collector pursue an old debt?

Each state has a statute of limitations about how long a debt collector can pursue old debt. For most states, this ranges between four and six years. These statutes govern the amount of time that a debt collector can sue you, but there is no limit to how long a collector has to try and collect on a debt. If you are being contacted about a debt that you believe is not yours or is outside the statute of limitations, do not claim the debt; instead, ask the company to validate that the debt is yours.

Getting Help

If you need help negotiating your debts, consider hiring a lawyer to help you. Good debt settlement attorneys have negotiation skills developed over three years of law school and many years of practical experience, as well as extensive knowledge about debt collections. And if you’re unsure about whether negotiating settlements is appropriate for your situation, an attorney can go over all of your options and give you advice specific to your circumstances. The lawyer can help you determine whether you should attempt to negotiate your debts or if you should do something else, like file for bankruptcy. If a creditorinitiates a lawsuit against youfor a debt, a lawyer can defend you in the suit.

In almost all cases, though, you should not hire afor-profit debt settlement companyor otherscammer debt-relief company.

How to Get Collections off Your Credit Report

Getting collection activity off your credit report can help you accomplish credit goals like improving your score or qualifying for certain types of loans. Though there’s no one way to remove collections or guarantee you’ll get the exact outcome you are hoping for, it’s still good to know how to remove this information from your credit report whenever possible.

The good news is that it’s possible to remove this derogatory information, so here’s exactly what you need to know about removing collections from your credit report.

How To Pay Collections

If there is a collection on your credit report, the first step is to confirm it. After confirming it, you have 3 options for paying collections 1) negotiate a settlement 2) offering a lump-sum payment 3) starting a payment plan.

Frequently Asked Questions

What is a collection on your credit reports?

A collection account is created when a debt you’ve failed to repay is transferred to a collection agency. You’re still on the hook for paying the debt once it’s sold, but you typically have to pay the collection agency instead of the original creditor.

Debts aren’t usually turned over to collections the moment you make a late payment, but the time between your first missed payment and the transfer can vary. It may take several months, it may happen immediately, or it may never happen at all, depending on the creditor.

Once the debt has been turned over to collections, it’s generally reported to the credit bureaus. It’ll then appear on your credit reports and, as a result, damage your credit scores until it’s removed.

Can you remove a collection from your credit reports without paying?

Technically, the answer is yes. It’s unlikely, though.

There are a few ways you could try. They’re essentially the same steps you’d take to request a paid account be removed:

  • File a dispute with the credit bureau and/or ask the collection agency to validate the debt if you believe the collection account is inaccurate.
  • If the account is legitimate but you’ve paid some of it and/or have exhibited responsible behavior otherwise, send the collection agency a goodwill letter requesting the unpaid collection be removed from your reports.

If the above routes fail, you’re probably out of luck. And remember that even if a collection account is removed from your credit reports, you’re still liable for the debt.

Final Thoughts on Collection Accounts on Your Credit

Restoring your credit score to good health after you’ve had accounts in collections requires a lot of time and effort. But with dedication and responsible management of your finances, it’s possible to rebuild credit. Our top tips for when you find yourself in a bad credit situation are:

  • Pay or settle any outstanding debts that have moved to collections
  • Check your credit score and read your credit reports regularly
  • Keep on top of your expenses going forward
  • Think about hiring the services of a reputable credit repair agency.

What Is A Charge Off On A Credit Report

A "charge-off" happens when a creditor closes an account to further use, but the debt is still owed. Often this occurs 120-180 days after payments on the debt have stopped.

Conclusion

If you want to start successfully managing your debt and credit score, repairing collection account errors on your credit report is a great way to start. You can dispute inaccurate accounts. If the account is inaccurate, it must be removed from your credit report. Once the negative information is removed, your credit score may improve.

If you have several accounts from debt collectors and collection agencies on your credit report, consider talking to a bankruptcy attorney who offers a free consultation to see if bankruptcy is a viable debt relief solution for you. If an attorney is out of your budget range, you can use Upsolve’s free bankruptcy website app to navigate the bankruptcy process so you can stop collection activity and seek a financial fresh start.

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