When a bill isn’t paid by a consumer (i.e. credit card, medical, utility, etc.), the creditor has a process to follow. Sometimes this process includes selling the account to a debt collector or turning the account over to a collection agency.
Creditors typically wait for the bill to be 120 days past due before turning the account over to a collector or agency. Once that occurs, it might only be a few days to a few weeks before a collection account appears on the consumer’s credit reports.
The Effects of Having a Collection Account on Your Credit Reports.
Simply stated, having a collection account or sign of debt collection on your credit reports is a bad sign to future creditors. Not only does it negatively impact your credit score, but it also makes it appear as though lending you money might be too big of a risk. Unpaid bills to others indicate the potential that you won’t pay them back and creditors typically don’t like taking that type of risk.
As the collection ages (gets older with time), its negative effects might lessen a bit, however it will remain on your credit reports for 7 years. That’s a long time for people who want to borrow money for a home, a car, a student loan and so many other things.
How Can You Remove a Collection Account?
Usually, collection accounts remain on credit reports for 7 years. However, there are some things you can do to try to decrease that timeframe and help make your credit profile more enticing to creditors.
- Make certain it’s your debt. Mistakes are made to credit reports every single day. If there’s a collection account or notice on your credit report that is not yours, be sure to dispute it immediately so the credit bureaus will remove it from your reports.
- Watch Out for Shifty Collectors. Collection accounts can only remain on a credit report for 7 years. Yet, some collectors will attempt to make a debt appear as though it became delinquent much later than it did. This gives them more time to try to collect the money and keeps the debt on your report longer. If that happens, dispute this with the credit bureau right away.
- Has Your Debt Been Transferred? Oftentimes, collection accounts are sold to other collectors. This means the collector or collection agency shown on your reports might not even be the one actually trying to collect the debt. If this is the case, you can dispute it with the credit bureau. If the collector doesn’t respond within a certain time, the credit bureau should remove the unverified account.
- Negotiate Until You Can’t. You should always pay your debt since it shows future lenders that you handled your financial debts responsibly. Yet, if you find a collection account on your report, you can always try to negotiate with the collector by sending a letter stating that you will pay the debt in full if they remove the collection account from your credit reports. It’s known as “pay for delete” and is one way to pay your debt and keep your credit report as clean as possible.
Another negotiation tactic involves what we all know of as “goodwill”. This is a letter you write to the collector of a collection account which has already been paid. The message is basically telling the collector what happened (i.e. medical bills hit hard, you fell on tough times, etc.) and ask if they’d be willing to show some compassion and remove the collection from your report.
It’s a last-ditch effort to clean up your report and… you never know. It could work out in your favor.
Check out myFICO forums to see how other myFICO members have managed their own collections accounts.
Latest posts by Rob Kaufman (see all)
- The Great Recession: Lessons Learned and Being Prepared. - January 20, 2020
- 3 Common 401(k) Mistakes to Avoid - January 14, 2020