- What You Need to Know About Debt Collections
- How a Collection Affects Your Credit Score
- How Long Does a Collection Stay on Your Credit Report?
- How Are Medical Collections Different?
- How I Remove Collections From My Credit Report
- Have a Professional Remove Collections
In my experience it is possible to remove collections from your credit report. A collection entry on your credit report, including medical collections, can severely lower your credit score and in many cases prevent you from obtaining a mortgage or auto loan.
Before we get into how to remove collections from your credit report, I want to go into detail about what a collection entry actually means, how badly it can hurt your credit score, and how long collections stay on your credit report if you don’t take any action.
What You Need to Know About Debt Collections
Debt collections come in many forms —whether it’s an old unpaid medical bill, cellphone bill, or even a library book that went unreturned. One thing all collections have in common is they will negatively impact your ability to get credit.
Original Creditor Vs. Collection Agency
When it comes to actually collecting on a debt, generally you’ll either be contacted by the original creditor or a collection agency.
When you’re contacted by a collection agency, it’s likely an older debt that the original creditor sold to the collection agency for pennies on the dollar. If this is the case, it could actually be good news for you because it puts you in a good position to negotiate, but we’ll go more into that in a bit.
How a Collection Affects Your Credit Score
Once a debt turns into a collection and it’s logged on your credit report, you will see a significant drop in your credit score. If you didn’t have any prior negative items on your credit report, this drop could be north of 100 points.
How much your credit score drops largely depends on how bad it was to begin with. In other words, a collection will have less of an impact for those who already have bad credit.
Another thing to keep in mind is that as the collection ages, it will have less of an impact on your credit score.
Paid Collection Vs. Unpaid Collection
One mistake I see people often make is thinking that paying a collection will automatically remove it from their credit report.
It’s important to keep in mind that the collection won’t be removed from your credit report even if it’s a paid collection. Therefore, lenders will see the collection when they pull your credit report and it will likely affect their decision to lend you money. At the very the least your interest rate will go up. With this said, it’s definitely worth removing a collection from your credit report.
Also, when you have a collection, it’s likely that there are late payment entries on your credit report associated with the same debt. This is simply because you were probably late on your payments which is what caused it to go to collections. These entries are usually (not always) separate from the collection, and late payments can also be removed from your credit report.
How Long Does a Collection Stay on Your Credit Report?
Whether a collection is paid or unpaid, it will remain on your credit report for 7 years. This means that for seven years it’s going to affect your ability to get auto loans, credit cards, mortgages —basically everything. The worst part about it is even if you do get a loan, you’re going to end up paying a higher interest rate because you have bad credit.
Of course, as a collection ages it will have less of an impact on your ability to get credit.
How Are Medical Collections Different?
Until recently, medical collections were treated the same as all other collections. However, FICO updated their scoring in 2014 to treat medical collections differently. Medical collections now carry less weight when your credit score is calculated.
Again, this doesn’t mean a medical collection won’t affect your ability to get a loan. Lenders don’t just look at your credit score to make their loan decisions. They usually pull your entire credit report and notice your past negative items. This, in turn, will affect your approval as well as interest rate. This is especially true when you’re applying for a mortgage loan.
How I Remove Collections From My Credit Report
When I was in college I got a cellphone with Sprint. The phone service didn’t work well so I switched to Verizon but forgot that I owed Sprint a payment. Long story short, it ended up going to Sprint collections and showing up on my credit report. I went ahead and paid the collection because I thought that would also remove it from my credit report. However, it wasn’t removed, it was just changed to “paid collection”. I followed these steps to get it removed.
1. Request a Goodwill Adjustment from the collection agency
The first step is to mail the collection agency a “goodwill letter”. This is basically a letter that explains your situation, such as you want to purchase a house but can’t because of the collection on your credit report, and you’re kindly asking that they remove the collection out of goodwill. I know this sounds like a long shot, but it works surprisingly well. The best way to write an effective goodwill letter is to use my sample goodwill letter template.
2. Dispute the Collection Using the Advanced Dispute Method
If the goodwill letter fails to get the debt collection removed from your credit report, the next thing you should try is the advanced dispute method.
For this method you will need a current copy of your credit report. TransUnion will provide you with all your credit reports –plus they include your credit score for free.
Once you have your credit report, find the entry of the collection you want removed and verify every piece of information that is listed. If you find anything that is inaccurate, note it. This method works because rather than simply disputing the entire entry, you are going to write an advanced dispute letter that lists specially what is inaccurate.
Check the following items on the collection entry for inaccuracies:
- Account number
- Date opened / Date closed (check all dates)
- Account status (e.g., Closed)
- Payment status (e.g., Collection)
- Credit Limit
- High Balance
- Anything else that appears to be inaccurate
After you have noted the inaccuracies you found, use my advanced credit dispute letter template to write your letter. Using this letter, you will demand that each piece of information be corrected or that the collection be removed. This makes it more difficult for the credit agencies to verify the collection, and hopefully result in them simply removing the collection altogether.
3. Demand That the Collection Agency Validate the Debt
If you’re unable to find any inaccuracies on the collection entry on your credit report, next you should write the collection agency and demand that they validate the debt. Under section 809 of The Fair Debt Collection Practices Act, collection agencies are required to validate debts they are attempting to collect if you request that they do so.
The rub here is that you only have 30 days to make the request after their initial contact. If they are unable to validate the debt, you can ask them to remove it from your credit report.
Have a Professional Remove Collections
Lastly, if you’re the type of person who would rather have a professional handle it and just be done with the whole thing, I suggest you check out Credit Saint. They’ll take care of you, and honestly they usually get stuff removed a lot quicker. Give them a call at 1-833-333-2439 or Check out their website.