Not sure how to remove collections from your credit report? You’re in the right place. Having a collections account on your credit report damages your credit score and impacts your ability to take on new loans or credit cards. What’s more frustrating is that a collections entry will stay on your credit report even after paying. The credit bureaus will simply change your account to a “paid collection.” Luckily, there are ways to remove a collection from your credit report, increase your score, and put you in a better position to access credit. Below we will outline step by step how to do it.
- Collection accounts fall under the category of Payment History, which is the largest factor in your credit score and drives approximately 35% of the calculation. It will also stay on your credit report for seven years after it has been fully paid.
- You have the right to validate the debt within 30 days from the first instance you are notified. Once you do that, there are a number of strategies to remove the collections account from your credit report.
- These include collection dispute, goodwill deletion, requesting verification from the collection agency, and Pay-for-delete.
Collection Account – What is it and how does it impact your credit score?
A collection account refers to any long-overdue debt that is already referred or sold to a collection agency for collection.Outstanding debt can be from overdue credit card balances, mortgages, personal loans, or any obligation.
In simplest terms, the debt is already considered a “bad debt” – long overdue debt – by the original creditor.
Depending on the transaction, the collection agency either earns from collecting the debt on behalf of the original creditor, or they make a profit from the difference between the amount they bought the debt for and the amount they can collect.
Once the collection agency handles the debt, they must report it to credit reporting agencies – Equifax, Experian, and TransUnion – which will reflect your collection account in your credit report.
Late payments and collections account for apprximately 35% of your credit score and this entry can stay in the credit report for seven years.
Late payments (typically 30-90 days past due) will not be reflected as a collection account, however, once it is handed over to a collecting agency, then removing the collection account will be difficult.
How to remove a collection account from your credit report?
There are four main ways to remove a collection account from your credit report. These are
- Debt validation
- Collection Dispute, and
- Goodwill Deletion
- Request the Collection Agency to Verify the Debt
There is another one, Pay-for-Delete, but this is usually not accepted nowadays, but will also be discussed below.
- Debt Validation
This is the first step you have to take the moment the collecting agency contacts you.
Fair Debt Collection Practice Act (FDCPA) is the governing law for what a collection agency can and can not do as it relates to debt collection.
In addition to prohibiting harassment and misrepresentation, the FDCPA also requires collecting agencies to show proof of debt, and if requested, to validate the debt.
The collection agency must contact you within five days of acquiring the debt from the original creditor. The agency may try to inform you verbally. However, insist that they send a letter. By law, they are required to provide the following details:
- The name of the original creditor, or to whom you owe the money
- Amount collectible
- Your right to have the debt validated by sending a debt validation request letter.
You must send the debt validation letter within 30 days from the receipt of the letter from the agency. Failure to send a request will make the debt valid and collectible.
There are lots of sample debt validation letters available. In addition, you can also request more information, documents, and whether the collecting agency is authorized to collect it. You can also request that they stop contacting you until the debt has been validated.
By law, the collection agency is required to reply to your request. If no reply has been received, you can report them to the Consumer Financial Protection Bureau.
2. Dispute the collection – for errors
If you find any incorrect information in the report, you can dispute this information with the credit bureaus.
The Federal Trade Commission has provided a sample dispute letter. A debt dispute letter should include all relevant information relating to the error – the account being contested, the nature of the debt, the original creditor, and why it is an error.
The letter should list out the specific items that are incorrect. The Fair Credit Reporting Act requires only accurate information, so they are required by law to correct the misinformation. If they are unable to, they will be forced to remove the collections from your credit report.
Listing the problems out line by line makes it more difficult to verify all the correct information, and therefore gives you a better chance of getting the collection removed
As is the case with debt validation, the collection agency should respond to your request within a reasonable time. Failure to do so and you can report them to the Consumer Financial Protection Bureau.
It’s worth noting that filing a dispute will not impact your credit score. However, if the report changes as a result of your dispute, then your credit score should change as well.
3. Request for a Goodwill Deletion – for paid accounts or rare circumstances
If the reason for the unpaid balance is because of an unfortunate instance, a mistake on your end, or other errors that are out of your control, then you may make a goodwill deletion request.
Usually, goodwill deletion works by explaining why the amount was not paid, that this was a one-time incident, and that it won’t happen again.
Goodwill deletion usually works for people with good credit scores, low credit utilization, and good standing. As this is a goodwill request, this usually works a few times only, and should not be made into a regular habit.
For a goodwill deletion request, you should send a letter to the collection agency. Unlike dispute letters where the tone is formal, business-like, or at times, authoritative, a goodwill deletion request should sound apologetic and sincere.
A goodwill deletion request must be sent to the original creditor or collection agencies instead of sending it to the credit rating bureaus.
While goodwill deletion is not a guarantee that collections accounts are removed from your report, it’s certainly worth a try.
4. Request a Collection Agency to Verify the Debt – if there are no reasonable reasons for the collections account
If you’re unable to find any inaccuracies, you can write a letter to the collection agency and ask them to verify your debt. Note that you only have 30 days after they first contact you to validate your debt. Send it certified mail so that you have a record. Once received, they must cease attempting to collect before they respond.
It’s not uncommon for critical paperwork to be lost when your debt is transferred from your original lender to the collection agency. If they can’t validate it, you can ask them to remove it from your credit report.
5. Pay-for-delete – soon to be outdated
Even when a collection account is paid in full, this will remain in your credit report for seven years and can drive your credit score down. Pay-for-delete involves entering into an agreement with the collection agency to delete a collection account in exchange for payment. The collection account will be deleted in your credit report but will still reflect late payments and other negative information.
Credit bureaus are clamping down on this activity, and are now requiring collection agencies to provide complete details of the interaction, and this is not considered a good practice.
At any rate, Pay-for-delete will soon become less important as the latest credit scoring models, FICO 9 and VantageScore 3.0 and 4.0, put less reliance on paid collection accounts, so it will have a smaller effect on your credit score..
Plenty of lenders still use the old scoring models, so it’s still important to get this cleaned up when you can.
Hire a Credit Repair Company To Remove the Collection
You can also hire a credit repair company, which specializes in removing improper entries on your credit report.
If you don’t have the time, or have multiple errors to deal with, or just want an expert to help guide you through the process, this is your best route. The all-in cost of a few hundred dollars is typically worth the money saved and the headaches avoided.
One of our favorites is Credit Saint, but you can check out the full list of best credit repair companies here.
Ways to improve your credit score
A collection account in your credit report negatively affects your credit score, but all hope is not lost. Here are four ways to improve your score
1. Never miss out on payments
Your payment history accounts for about 35% of your credit score. Missing things like rent payments and utility bills could continue to negatively affect you.
2. Maintain a low credit utilization rate
Stay in cash as much as possible. Another important factor of a credit score is the credit utilization ratio. This is the amount of credit that you use relative to the amount of credit that is available to you.Keep this as low as you can.
3. Communicate with your creditor(s)
When it seems that you will miss out on payments, inform your creditor, explain the reason why you’ll miss out on payment, and when you plan to catch-up. This way, they will be more understanding of the situation and will delay transferring your loan to collection agencies.
4. Consider a secured or self loan
Local banks and credit unions will often give you a loan secured by your deposit. This is a safe option for them, since they can access your savings/deposits if you stop paying, and is good for you as they report back your payment record to the credit bureaus. Self Financial is an online company that does something similar.
How does a collection account affect my credit score?
A collection account is reflected in your credit report for up to 7 years from the time of payment. The collection account is considered a part of payment history, which drives approximately 35% of the credit score, so it will certainly have a large impact.
What are my rights under FDCPA?
The Federal Debt Collection Practices Act (FDCPA) is a federal law that outlines what collection agencies and other third-party debt collectors can and cannot do while attempting to collect debts.
Debts and obligations including mortgages, credit cards and student loans are covered in this law.
Under this law, the following rights are accorded to you:
- debt collectors cannot contact you before 8 am or after 9 pm
- debt collectors cannot contact you when you are in the office
- Collection agencies can communicate with your attorney
- They cannot communicate to your employer, family, and neighbors
How can the Statute of Limitations help my collections account?
A statute of limitations indicates over what time period a creditor can go to court and force you to pay for a debt. This is helpful to know if you have multiple debts and are trying to determine priority.
If a loan’s statute of limitations has already expired, then the creditor cannot force you to pay an outstanding balance. While this is positive, it will still negatively affect your credit score.
How to remove paid collections from my credit report?
If your creditor uses the latest credit score models, then paid collections are not as important. However, you may still want to try a goodwill deletion, so you can improve your score under the older models (many of which are still used by lenders).
This doesn’t work all the time, but there is generally not much harm in trying. Explain your condition, why there was a late payment, and commit to that delay not happening again.
Outside of that, you will have to wait for seven years before the collection account is removed from your credit report.
Can I negotiate with the collection agency to remove my collection account?
FCRA requires collection agencies to report credit-related information to credit reporting agencies in its entirety and truthfully. Not doing so is highly discouraged, and for some, is prohibited.
However, sending a goodwill deletion will not hurt.
How long is a collection account reflected in my credit report?
Paid collections account will remain in your credit report for seven years.
What is the best way to remove collection accounts from your credit report?
The best way is to avoid having collection accounts in the first place. However, in circumstances that are unavoidable, the best course of action is to first check the validity of the claim.
Compare it to your own records and establish an open communication with your original creditor or collection agencies. A line of communication establishes your credibility as a debtor and opens the door to negotiation.