How to Remove Collections From Your Credit Report

How to Remove Collections From Your Credit Report

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It is possible to remove collections accounts from your credit report.

A collection entry on your credit report will lower your credit score. Often, a collection account will keep you from getting a mortgage or auto loan.

Removing collections accounts from your credit history could restore your borrowing power.

How to Remove Collections from Credit Report

1. File a Dispute with the Credit Bureau

Every consumer is entitled to fair and accurate reporting according to the Fair Credit Reporting Act (FCRA). Credit repair, which involves disputing unsubstantiated or inaccurate information on your credit report, can be used to address a collection if it is inaccurate in some way.

Here are the steps you’ll need to take when filing a dispute with the credit bureaus.

  1. Review your credit report to see if there are any inaccuracies. These can include the same debt reported multiple times, accounts are reported that don’t belong to you, the wrong collection agency is listed on your credit report, and debts that should have fallen off of your report.
  2. Gather evidence related to the inaccuracy. This documentation is necessary for the credit bureaus to investigate the error.
  3. Report the inaccuracies to the credit bureaus. Send a letter including information verifying your identity, details of the error, and supporting documentation.
  4. Wait for the credit bureaus to report back. The bureaus must investigate the dispute within 30 days and report back their findings to you. They’ll get in contact with the debt collection agency at this time to verify the disputed information.

If the debt collection does not respond or is unable to substantiate the information, then the information will be removed.

However, the collections account will remain on your report if the debt collection is able to verify the information.

You can pursue a couple other options to remove collections from your report if the bureaus find it is fairly and accurately reported.

2. Write a Pay for Delete Letter

A pay for delete letter is a negotiating tool to have negative information removed from your report in exchange for payment.

Collection agencies are not obligated to accept this. If they do agree, make sure to get everything in writing to hold the collections agency accountable.

3. Request a Goodwill Deletion

This is a request sent to your original creditor to remove a negative item out of goodwill. This works best if you have a positive history with your creditor.

How Does A Collection Affect Your Credit Score?

Once a debt turns into a collection account and gets logged on your credit report, you will see a significant drop in your credit score.

If you didn’t have any other negative items on your credit report, this drop could be north of 100 points.

How far your credit score falls largely depends on how bad it was to begin with.

In other words, a single collection account won’t be a huge deal to someone who already has multiple delinquent accounts and a consistent string of late payments, even on their up-to-date accounts. This person already had bad credit.

But if you’ve established a long history of making on-time payments, keeping a healthy credit utilization ratio, and maintaining a blend of different types of credit, a collection account will make a huge negative mark.

As the collection account ages, its impact on your credit score will lessen. But this won’t help if you need new credit this month.

How Long Does A Collection Account Stay on Your Credit Reports?

The fact is that a collection account will not be removed from your credit report just because the account has been settled or paid.

Even after a collection account has been paid, the credit bureaus are still legally allowed to continue to report the collection for up to seven years from the date of default on the original account, thanks to the Fair Credit Reporting Act.

To put it another way, a collection account can remain on your credit reports for up to seven years from the date the original debt became 180 days past due, regardless of whether the account has a $0 balance.

How to Avoid Collections

It’s best for your credit and your finances to avoid collections when possible. Here are some steps you can take to avoid collections:

  • Track your spending to create a monthly budget and cut down on unnecessary expenses. There are a slew of budget tracking resources available on the internet, and many of them are free.
  • Consider debt consolidation if you have trouble keeping up with minimum payments.
  • Try negotiating with creditors before your account is sent to collections. If you cannot make your minimum payments for a good reason, reach out to them and explain your case.You never know until you try — and this is something certainly worth trying. The creditor may be willing to negotiate a new payment plan with you, allowing you to avoid being sent to collections or reporting a charge-off on your account.

How Do I Know if I Have a Collection on My Account?

The first step in removing a collection from your credit report is to identify if there are any. You must first obtain your credit report to check for any derogatory items.

You can receive your free credit report from sites such as annualcreditreport.com without the fear of hurting your credit score.

Your free report is available to you every 12 months at consumer sites. According to federal law (US Code 15, Chpt. 41, on Consumer Credit Protection), you are eligible to receive a free report if you:

  • Had an “adverse notice”, meaning you were denied credit that you applied for. The prospective creditor must send out notice of their decision and refer you to the credit bureaus to obtain the information in your report that they based their decision upon.
  • Request a report in writing certifying that you are a recipient of public welfare
  • Are not employed and will apply for employment within 60 days of sending a certified request in writing, or
  • You believe there are inaccuracies on your report due to fraud.

What are Typical Collection Accounts?

Wondering what companies report bad debt or collections? You may be surprised at the various types of reporters. Voluntary reporting can be done by:

  • Credit card issuers
  • Utility companies (usually if you have an unpaid last bill)
  • Cell phone companies
  • Student loan lenders/servicers
  • Car loan lenders
  • Mortgage loan lenders/servicers
  • Medical bills
  • Rental companies (if you owe back rent)
  • Government agencies (IRS, courts)

Typically, people report amounts in excess of $100 when delinquent. They usually submit delinquencies greater than 30 days, but some smaller amounts may stray onto the report.

Some accounts will list delinquencies of 30+ days, 60+, 90+, etc. The greater the delinquency date, the most damage is done to your score, and the worse you look to potential lenders.

How Do Collection Accounts Get Started?

In order to better understand why paid collections are left on consumer credit reports, let’s take a quick look at the process whereby collection accounts end up on a consumer’s credit report in the first place.

An Uncollectible Bill

The process begins with an uncollectible bill (i.e. a medical bill, a credit card bill, a loan, etc.). Each original creditor or medical office has a policy regarding what they will do with uncollectible debt.

A company might sell the account to a debt collector. It might turn the account over to a collection agency. It could even write the account off and make no further collection attempts, but that’s not the norm.

A Collection Agency

Most creditors and medical offices will wait until the original bill is at least 120 days past due before turning the account over or selling the account to a collection agency. (And some will wait 180 days.)

Once an account has been turned over or sold to a collection agency, it’s typically not very long before a new collection account appears on the consumer’s credit reports. Some collections might appear on just one or two credit reports. Many others will be added to reports with all three credit bureaus.

A Collection Account Is Created

Future lenders desire to see a full report of your credit management history before deciding whether or not to offer you a new extension of credit or a new loan. This credit history (and your credit scores) is something used again, if you’re approved, to determine how much to charge you for financing.

The presence of any collection accounts on your credit reports, whether paid or unpaid, is indicative of elevated risk. This is very important information for a lender to know when reviewing your application for credit. The Fair Credit Reporting Act (FCRA) allows for even paid collection accounts to remain on consumer credit reports for seven years from the date of default for this reason.

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