How to Remove Collections from Your Credit Report
Are you looking to repair your credit but don’t quite know how to handle those unpleasant collection accounts sitting on your credit report?
Working with collection agencies to resolve the issue can be difficult if you don’t take the proper steps. And even if you decide to pay the balance in hopes that it’ll go away, you may be surprised later on down the line when you realize your score doesn’t improve.
Let’s take a closer look at how collection accounts work, the impact they have on your credit score, and what you can do to have them removed. We’ll also discuss how to handle medical collection accounts.
What are collection accounts?
Collection accounts appear on your credit report once a creditor or lender determines that they probably won’t be able to collect on the past due amount owed. While they take a financial hit, the creditor or lender is allowed to take a loss and can write this amount off on their tax return.
Unfortunately, this is bad news for you as your score will more than likely tank, possibly by up to 100 points. In addition, you may be forced to deal with aggressive debt collectors who are anxious to sap your hard earned money from your wallet.
Wondering what types of collection accounts are most common? They include:
- Utility accounts (i.e. water, sewage, electricity, gas, trash)
- Cable accounts
- Cell phone accounts
- Credit card accounts
So, if you relocate and forget to pay the final cable or utility bill, don’t be surprised if a collection account shows up on your credit report. The same rule applies for cell phone and credit card accounts that are closed with an unpaid balance that the service provider or credit card issuer deems uncollectible.
How do collection accounts impact your credit score?
Thanks to updates made to the FICO scoring model, unpaid and paid collections no longer impact your credit score the same. Under FICO 8 and VantageScore 3.0, the only major benefit to paying off a collection account was the status update. It communicated to prospective creditors and lenders that you had paid the outstanding amount in full or settled the account for an amount that was acceptable to both parties. However, the negative effect on your score lingered.
But under FICO 9 or VantageScore 4.0, paid collection accounts are not considered in credit scoring. This is a major benefit because you no longer have to worry about an old or small collection account dragging your score down, even after you’ve taken care of it.
How long do collection accounts stay on your credit report?
Collection accounts are reflected on your credit report for seven years. And unfortunately, paying it off won’t make it go away. Instead, the collection agency will simply update the status to paid in full or settled.
But as mentioned before, FICO 9 and VantageScore 4.0 overlook paid collection accounts, so your score won’t take a hit if the lender uses this model.
Reporting timeline vs. statute of limitations
It’s important to understand the difference between the reporting timeline and statute of limitations when dealing with collections. While the creditor can report the account for up to seven years, they are limited on the time in which they can sue you for the delinquency. This is referred to as the statute of limitations and varies by state.
The statute of limitations in some states is four years, according to NOLO. But you may find that this period is much longer in your state of residence.
What’s the easiest way to have collection accounts removed from your credit report?
Because lenders are starting to adopt FICO 9, it may be in your best interest to pay the outstanding collection account so it won’t continue to impact your credit score. But what if you can’t afford to do so?
Or maybe you need to have the collection account removed to qualify for a debt product with a lender that hasn’t yet adopted FICO 9?
Ask the collection agency to validate the debt
Is the collection account listed with more than one collection agency? If so, there’s a high possibility the file has been passed around and is missing the adequate documentation from the creditor to prove that you actually owe the debt.
For this reason, you should submit debt validation letters to the collection agencies. You can do so by filing a dispute with each of the credit bureaus to ensure you get a response within 30 days. If they don’t respond to your request, the item must be removed from your credit report.
Negotiate a pay-for-deletion
What happens if the collection agency can actually validate the debt? The next step is to request a pay-for-deletion. In a nutshell, this arrangement states that the information provider (or collection agency) will remove the account from your credit report in exchange for payment.
These types of arrangements are becoming less common, so you’ll have to be more persistent. But don’t be fooled into thinking it can’t be done. Collection agencies will tell you that it’s against the rule to remove the mark, but it’s not as they’re the ones who reported the account to the credit bureaus in the first place.
Also, be sure to get the arrangement in writing to ensure the collection agency follows through on their promise. Otherwise, you’ll be left with less cash and a negative mark on your report.
Hire a reputable credit repair company
Some collection accounts are much trickier to deal with than others. And if you aren’t knowledgeable of credit repair and how it works, it may be in your best interest to leave the work to the professionals.
For a monthly fee, they can handle the entire process from start to finish. They can also work with you to have collection accounts removed if they are questionable or being reported incorrectly. Best of all, you can get started with most credit repair companies without forking over any money because they offer free consultations to explain the ways in which they can help you.
Dealing with medical collections
Are medical collections dragging your credit score down? Fortunately, the damage is not as significant under FICO 9. And once these accounts are paid off, they no longer impact your FICO score.
While you’ll have to take the same steps as listed above to have medical collections removed from your credit report, the good news is a new rule makes it much more difficult for accounts to be reported in the first place.
In fact, service providers have to wait for at least 180 days before the account can be placed on your credit report. And in the event your insurance company decides to pay the bill after the fact, the collection accounts must be removed, notes Times.
This is a major plus for consumers for two primary reasons. First, it gives them more time to enter into a payment arrangement with the medical provider. It also leaves an ample amount of time for the insurance claims processing to be completed.
The bottom line
Credit reports without collection accounts are much more appealing in the eyes of creditors and lenders. But if what you’re looking for is a higher credit score, paying or settling the account may be enough to yield results if the lender has adopted the updated FICO 9 or Vantage 4.0 credit scoring model.
Either way, by being diligent and doing the legwork, you can get the collection account removed or pay the balance to give your credit score a boost.