How to Remove Paid Collections From Your Credit Report: A Comprehensive Guide
There is no upside to having an account in collections on your credit report. It is a red flag, it screws your scores, and it stays on for what feels like forever. It is something you don’t want to have, plain and simple.
Life happens. Bar the off chance that a creditor flags your account in error, you may fall so behind on payments due to financial difficulties that your creditor decides to sell your debt to a debt collection agency or company—also called debt collectors or debt buyers.
After the sale, it’s only a short time before a shiny new collection entry pops up on your report. At this point, it is imperative to explore all possible options to remove paid collections from your credit report. Make no mistake, it isn’t a cakewalk: but, it is possible. You must have been aware of the benefits of having a good score and may ask yourself “How many points will my credit score increase when collection accounts are removed from report?” , the answer is that depends on your overall credit standing, some folks get an increase of up to 200 points and getting their score above 700 points while others get much less than that.
Now, before exploring these options, it is crucial to note a few things about debt collections on a credit report.
Collections on a Credit Report: Rules and Norms
- It is lawful. The Federal Trade Commission confirms that it is within the rights of creditors to send your account to a collection agency. And the debt collector or original collector can, and typically do, report the account to credit reporting agencies.That said, the FTC enforces the “Fair Debt Collection Practices Act (FDCPA),” which details the rules a collection company has to play by when recovering debt as well as consumers’ rights.
- It hurts your credit score. Collection accounts are a major factor that can send your score tumbling down. They are considered to be seriously delinquent and scream “high risk.” Sure, its impact reduces with time (as it ages). However, it could be one of the core reasons for a declined loan request and higher interest rates, especially if it is unpaid, is recent, or both.
- It’d stay on your credit report for up to SEVEN (7) years. According to the “Fair Credit Reporting Act (FCPA),” the reporting limit (the duration for which your debt can show on a credit report) is seven years from the date the account was charged off (typically the last 180-day late payment on the original account).This date is technically called the “Date of First Delinquency (DOFD).” The date cannot be changed inaccurately, else it’d amount to re-aging which the FTC frowns.
- All information must be correct. Before paying off a collection, verify the debt, and take appropriate steps to dispute the collection account if ANY information is incorrect. Some debt collectors may do unscrupulous things like trying to recover debts you no longer owe, list multiple collections on your report for the same debt, or even tamper with theDOFD to push the reporting limit further off.Furthermore, if the collection account has any inaccurate or incomplete information, it is well within your right to dispute it. Debt buyers are mandated to confirm the information.
- Most loan types can be sent to collections and lenders have different policies. In general, most unsecured accounts, such as personal loans, credit cards, and utility bills, are sent to collections in a straightforward manner.However, secured accounts, such as auto loans or mortgages, typically involve repossession and foreclosure respectively. Still, you may have a collections account after a repossession. This may be the case if the full amount owed exceeds the amount for which it was sold at auction, and the remaning amount is sent to collections.In addition, creditors do not have the same policy regarding selling debt to collection agencies. Some may send accounts after only a month of missed payments, while some may be lenient enough to let it stretch to 180 days of non-payment.They usually would notify you multiple times, but the exact number of times they’d do so varies. To have an idea of the timeline and other details, review your loan agreement.
- Paid collections help perception, but do not affect the reporting limit. Paying off an accurate collection account is necessary. The status of the collection will be updated to “paid,” potential creditors would view it in a less negative light than an unpaid collection, and a strong positive factor lenders check is the amount of outstanding debt you have in relation to your total credit limit.However, paying it off would not speed up the countdown. It’d still be 7 years from the DOFD. That said, some newer scoring models—FICO Score 9 and VantageScore 4.0— ignore paid collection accounts or weight them less when running the numbers.Therefore, if a potential lender uses one of these recent scoring models, then your application just got a boost, if only minor. Don’t keep your hopes up though. Financial institutions aren’t typically always up to date with scoring programs.
Tips to Remove Paid Collection Accounts From Credit Reports
1.Dispute the collection account
For starters, you only have to pay a debt you owe. Therefore, if a collection account isn’t yours, is a duplicate, or has any inaccurate information, you can (and should) dispute the debt with the credit reporting agency to have it removed from your credit report.
Furthermore, debt collectors are obligated under the FDCPA to provide proof (validate) that you owe a debt, as long as you request validation for the debt within 30 days of receiving a notice of the collection (from the collector).
If the debt buyer does not respond to your request or is unable to validate the debt, they cannot legally collect the debt from you, and the collections account has to be removed from your credit report.
2. Negotiate to have it removed after you pay
It is common for individuals to negotiate with a debt collector to pay a fraction of the debt amount. You could take that a notch higher by negotiating to have your collection account removed from the credit report as a condition for making payment. Sometimes, the collection agency may make the request. Our advice: Grab it.
A recommended way to go about this is to first send a letter of intent to pay, along with a “pay to delete” offer. Here’s sample letter to remove collection from credit report you could use. If the debt collector agrees, you’re in luck. Now, here’s the important part.
- Endeavor to send all correspondence through certified mail with return receipt requested
- Ensure that you get the agreement in writing. Preferably ask for a signed copy of the letter you sent to seal the agreement.
Do NOT make payment on the basis of an oral agreement. You want an agreement that’s verifiable should the collector renege on it.
Worse case scenario, you get an agreement in writing, you make payment, and unfortunately you check your credit report and the collection entry has not been deleted. Don’t fret. You’d simply have to dispute the collection and send a copy of the agreement and proof of payment to the credit bureau. That should do it.
3. Request a goodwill adjustment or deletion
It may not sound like much, but this option is surprisingly effective. The idea is to modestly ask your creditor to remove the collection entry out of goodwill, after paying it off. It works best if you have a really good credit history or you’re building one and on a decent run, and you only have isolated late payments or errors.
But there’s no reason why you can’t chip in a reference to any hiccup you might be experiencing as a result of the collection, say difficulty with getting a mortgage because of the collection account. You can use sample goodwill letter for paid collection here.
4. Wait it out and dispute after seven years
Hopefully, the other options work for you. But if they don’t, you’re stuck with the collection entry until the reporting period is up. After which you can dispute the debt. If you have a proof to corroborate the date of first delinquency, it’d strengthen your dispute.
That said, watch out for sly collectors trying to re-age your debt to push the reporting period. This is illegal and you should dispute it right away.
In a nutshell
It might be quite a bit to go over, but figuring out how to remove paid collections from your credit report is well worth the effort. You wouldn’t have to worry about the scoring model your potential creditor uses or have it blot your credit report for up to 7 years.
The tips to follow aren’t complicated and chances are high that you’d be successful with one of them. Regardless of the outcome, make certain that you try your best to build your credit going forward and prevent any more collections in the future.
Even if that means having to delay making a collection account payment until you are financially comfortable to do so, in order to pay off other debts that are at risk of being sent to collections. After all, an ounce of prevention is worth a pound of cure.