How to Remove Collections from Your Credit Report in 2022
Credit is a useful tool for building up your finances. However, consumer debt is on the rise in the United States in an unprecedented way. In 2021, average consumer debt reached over $90,000 for American families. In some cases, these families can’t pay back their debts, causing bills in collections.
Debt collections hurt your credit score. But how severe is this effect? Are there any strategies you can use to get the collection removed from your credit score?
With a little understanding, you can navigate this stressful situation and come out the other side with a plan to tackle the debt and the collection report.
What Does It Mean for Debt to Go into Collections?
If you don’t pay back a debt on time, it can eventually go into debt collection. This phase of debt repayment is when a collection agency reaches out to the people that co-signed the debt for the money that the client is owed.
Debt collection agencies are third parties that operate outside of the borrower and lender relationship. A collection agency’s job is to find a way to reach the borrower and either collect the money for the overdue debt or find a way for the borrower to start repaying their debt to the lender.
Debt collection agencies receive payment from the lender when they collect on the debt owed. Usually, the collection agency receives a percentage of the debt as their service fee. However, some collection agencies instead buy out the debt for a fraction of the total amount and then go after the original borrower for payment.
Several different debts can go into collections, such as:
Car and auto loan debts
Overdue credit card balances
Unpaid utility bills, such as electricity or water
In summary, having a debt go into collection is not great. In addition to the credit score troubles it can cause, having a debt go into collections means that you now have a third party hounding you for money. It’s stressful, unpleasant, and could be making a bad situation worse.
Does Debt Collections Affect Credit Score?
Do you know how making late payments on debt can harm your credit score? Having a debt go into collections is worse.
When a debt goes into collections, it means that the original lender has given up on trying to collect payment from the borrower. At this point, they pass the burden off to another agency that has the resources or skills to help a borrower start paying back that debt.
However, passing this debt off to a collection agency shows other lenders that you have a track record of not paying back your debts for a long time. For lenders, your payment history is an important consideration. That fact is why credit score calculations all make payment history such a large part of their evaluation and total scoring system.
Having a debt go into collections also means that your credit score can take longer to recover. Collections stay on your report until you pay back the debt. Depending on the size of the debt, this could take years to pay back the debt and have it removed from your credit report.
How Many Points Will My Credit Score Increase When I Pay Off Collections?
A question many folks have about collections is “does paying off collections improve credit score?” It’s hard to say exactly how many points clearing a collection from your credit report will do. If the collection in question is the only one on your credit, then it won’t take as long as someone who has multiple debts that have gone into collection.
Remember, payment history is around 35% of your FICO credit score. Debt collections have a large impact on your credit score because of this. Lenders are less likely to loan money for things like mortgages and cars with someone who doesn’t pay their debts on time.
So, the answer to the question “does collections affect credit score?” is yes!
However, the FICO 9 scoring system no longer reports paid debt collection accounts on their credit report. If you can pay off a debt collection and have it removed from your credit score, you can start increasing your credit score much faster than before.
How Long Does Collections Stay on Credit Report?
Unless otherwise handled, a debt collection account stays on your credit report for seven years, much like other accounts on your credit history. Credit scores update continuously but closed accounts only stay for seven years.
Remember, a closed account doesn’t mean that the account was paid off. An unpaid collection would have a massive negative impact on your credit score. By showing to other lenders that you never paid back this debt, you reduce the chances of getting loans for a house or car in the future.
A paid collection account is another story, however. While some credit score calculations do not factor in paid-off debt collections, others do. For these accounts, they stick around for seven years or until the reporting agency removes it from their records.
Either way, seven years is a long time. If you can avoid going into debt collection in the first place, that’s the best way to prevent this stain from showing up on your credit report. However, there are some ways you can speed up the process.
How to Remove Collections from Your Credit Report
So, seeing the damage that a debt collection can do to your credit score, you might be wondering how to remove collections from your credit report. There are several ways you can do this, depending on whether the collection is paid or not and other circumstances.
Here are some practices to try out to figure out how to get collections off credit report:
Review Your Credit Reports
The first step to remove collections from credit report is finding out if you have a collection that is due in the first place. Getting calls and letters is one thing, but the best way to see what collections you have on your credit report is to check out the credit report itself.
Three agencies produce credit reports for United States citizens: Experian, Equifax, and TransUnion. While all three of these agencies figure out their credit scores differently, they all receive reports about collections, paid and unpaid, for their clients.
In addition to being a good practice for collections, checking your credit scores from time to time is a good habit in general. Mistakes, though rare, do happen sometimes on credit reports. A lender might be incorrectly reporting that you still owe a debt or a new line of credit that you opened hasn’t shown up yet.
Finding these collections reports and mistakes on your credits reports gives you the information you need to move on to the next step.
Gather Evidence to Prove Any Errors You Find
Errors made on your credit report negatively impact your ability to get competitive interest rates for things like mortgages and auto loans. Because your credit score is important for big financial purchases, the Fair Credit Reporting Act (FCRA) exists to make sure that credit reporting institutions follow the rules when creating your credit score.
Part of these agencies complying with this federal law is the removal of provable errors on a credit report. Individuals that review their credit reports and can prove that a part of the report is in error can have the error removed promptly by the agency.
However, you need proof to show the credit agency that the error exists. In the case of debt collections, this would either be payment history for the debt that is claimed in collections. Or, you might have to produce records that show that you worked with collections to pay back the debt in time.
In either case, if a debt collection is wrongly placed on your credit report, you’ll need to provide proof of the error from your records to have the error removed.
Request A Goodwill Deletion
In the case of paid debt collections, you can instead opt to work with the lender reporting the paid debt collection. These lenders might be able to work faster than the credit report agency, allowing you to get the mark removed from your credit report from a different side of things.
In this case, you might send a goodwill letter to the original lender. In this letter, you would include your circumstances and how the reporting of the debt collection hurts your ability to make a large financial purchase. The main idea of this letter is to ask the lender to remove the report from their end out of goodwill.
This tactic only works if your new lender uses a credit score that factors paid debt collections into its calculation. Many of the modern credit score calculations don’t factor in paid debt collections, but some older institutions might still be leery around borrowers with that event in their credit history.
While a goodwill letter won’t help most folks, it can be a boon for borrowers that need a loan after having paid off a previous debt from collections. For these kinds of letters, working with a collections removal expert is your best bet.
If a goodwill letter doesn’t work, you now have to work things out through the credit reporting agency. Gather up all the evidence that proves the error on your credit report in addition to the credit report for the agency showing the error. You’ll need this to dispute collections on credit report.
With all the material gathered, you’ll need to draft an advanced dispute letter. These letters provide a list of inaccuracies to the credit agency, as well as the evidence or info that backs up your claim to the errors.
In particular, these are the things you should be looking at for errors on the collections report:
Dates opened and closed
Account/payment status and history
Ultimately, this is how to dispute collections. The goal of the letter and disputing collections is to have the credit agency either fix the reporting or have it removed from your credit report altogether.
By providing all the above information and where the report is wrong, you make it hard for the agency to ignore the request. A bevy of evidence is the best way to take in how to dispute a collection account.
Ask A Collection Agency to Validate the Debt
If the credit report doesn’t have any inaccuracies, there’s another way to have the debt collection removed: ask the collection agency to validate the debt.
When a collection agency validates the debt, it means that they confirm that you are the person that owes the amount listed from the original lender. It’s essentially an audit of the debt to ensure that the collection agency isn’t going after the wrong person for the debt.
The trouble with validation requests is that they have a narrow window to be sent out. Once a debt collection agency first reaches out to a borrower, that borrower only has 30 days to send out a validation request. So, you’ll want to act fast once you receive your first collection notice.
The point of this tactic is to verify that the debt is yours. If the collection agency can’t validate the debt, then you can ask them to remove the collection notice from your credit report since they can’t prove the debt is yours.
Negotiate a Pay-to-Delete Agreement
To receive debts from lenders, a debt collection agency pays the lender a small fraction of the original debt. In return, the lender signs the loan off to them, happy to receive a portion of their money back from somewhere. However, the collection agency then hounds the borrower for the full amount.
In this circumstance, you can try to negotiate a pay-to-delete agreement with them. In this case, you try to set up a pay to delete letter where you pay off a portion of the original debt in a lump sum, at which point the debt collection agency would close the debt and remove the collection notice from your credit report.
Some collection agencies will do this to make a profit on the debt they picked up. Most debt collection agencies buy loans for pennies on the dollar, so negotiating around 30% of the original debt can mean you can make one payment and be done with the debt.
If you manage to get this agreement approved, make sure that documents are written and notarized. It’s good practice and helps keep you safe if the debt collection agency tries to come back to you for more money later.
Wait For The Collection to Fall Off
If the debt is legitimate and the debt collector doesn’t want to remove the debt from your report or negotiate a pay-to-delete agreement, you have one option left: pay off the debt and wait. It’s not the fastest choice, but it’s the choice everyone has available to them.
If you need to know when do collections fall off, the answer is seven years after the account first became delinquent. You’ll have to suffer a lower credit score while the debt collection is on your credit report, but it will eventually stop being reported in time.
If you can pay off the debt collection and continue to stay out of debt afterward, you’ll rebuild your credit score in time. It will mean a few years of higher interest rates and fewer lender options, but you’ll be on a path to credit recovery as long as you avoid delinquent status for your accounts in the future.
Still, paying off collections is your best bet from here. If you can pay off collections quickly, you can rebuild your credit score faster. The best steps to take in how to pay collections back involves solid personal finance habits.
How to Avoid Going to Collections in the Future
The best way to remove a debt collection from your credit report is to prevent it from ever happening in the first place. Here are some steps you can take to keep debt from going into collections in the first place:
Create a budget: Once you know where your money comes from and goes each month, you’ll be able to cut back on unnecessary expenses that can cause debt to pile up.
Avoid unnecessary expenses: While it can be tempting to load up a credit card to purchase nice things, unnecessary purchases like that can result in debt over time.
Look into debt consolidation: Before your debt goes into collections, reaching out to a debt consolidation service can help you refinance your debt into something with a lower interest rate, saving you money and headache.
Negotiate with creditors before debt goes into collections: Some lenders are willing to extend deadlines if they hear back from late borrowers, so reaching out to negotiate with a lender can prevent debt from going into collections.
In other words, the method in how to remove collections from your credit report is solid personal finance habits. Once you have your current debt collections handled, these tips can keep you from slipping back into bad habits and working towards improving your credit score and your wallet.
The Bottom Line
Unless the debt collection is an error on your credit report, it will most likely stick around for seven years. However, there are some strategies that explain how you can remove collections from your credit report, such as a pay-to-delete agreement or debt validation.
Regardless of how you have the collection report removed from your credit score, staying out of debt is the best way to avoid collections in the future. Smart spending and communication go a long way in finance. So sit down with your finances and figure everything out today so you don’t have to go through the stress of collections ever again.