Removing a collections account from your credit report can give your credit score a much needed boost and increase your financing opportunities. Credit reports are best described as a rundown of your complete credit history. Every credit account in your name, current balances and present status of accounts appear on your report. Credit reports reveal the good, such as timely payments and low account balances. But they also reveal the bad, such as old collection accounts. Collection accounts are a credit score killer, and applying for new credit with a recent or old collection account can move lenders to reject your application or charge a higher interest rate.
Collection accounts drop off credit report after seven years and six months. But if you can get a collections off your report sooner, this will drive up your credit score and help you obtain favorable rates and terms on loans and credit cards.
1. Demand proof of the debt. A third-party debt collector might contact you about an old collection account and report this account on your report. Be aware that some collectors attempt to collect past the statue of limitations and some companies can’t show evidence that you owe said funds.
Don’t write a check or send a money order until the collector faxes or mails evidence of the debt. Ask for confirmation and give the collector 30 days to respond. If your proof doesn’t arrive, demand that the company remove the collections from your credit report and stop contacting you. Collectors must comply if they cannot verify the debt.
2. Accept legitimate debt. Don’t give collectors the run around if you own a debt and they can supply proof. Collectors are relentless and they won’t stop until they collect. Some companies go to extreme lengths to recover funds, such as filing suits and garnishing wages (if permitted in your state). Be professional and agreeable to a payment plan. Paying a legitimate collections account doesn’t remove the entry from your credit report. Nonetheless, paying an old balance can help your credit history because collectors will report that you satisfied the account.
Debt collectors may discount or forgive a percentage of the debt owed by means of a settlement. This gives you the chance to pay less than the balance due. Debt settlements work if you don’t have income to pay the balance. The downside is that your debt collector will mostly likely report the settlement and this can cause further credit damage. But if you settle and agree to an amount that’s within the ballpark of your actual balance, this gives you bargaining power, and you can ask the collector to report that you paid the balance in full. Not every agency will reciprocate your honestly and professionalism. For this reason, get any settlement agreement or negotiations in writing before paying the debt.
Steve Bucci, “Don’t Ignore Creditors on Debt Collections,” Bankrate.com
“Pay for Removal Deals: Removing Collection Accounts from Your Credit Report,” Credit.com
“Debt Collection FAQ: A Guide for Consumers,” Federal Trade Commission