How to remove collections from your credit report – DIGIWIZ CENTRAL

How to remove collections from your credit report

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If you ask a debt collector to stop contacting you, they’re required to stop.

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A collection on your credit report indicates you couldn’t pay your debt, affecting future attempts to borrow money.
The first step to erasing collections is asking your debt collector to prove the debt is yours.
You can contact your debt collector to arrange a pay-for-delete agreement.

A collections on your credit report refers to a debt your creditor sold to a third-party collections agency that chases the owed money. The collection’s existence on your credit report is not ideal. It can severely lower your credit score and impact future loans. However, there are entirely above-board ways to get a collections account removed. Here’s what you need to know about the impact of collections and how to get them removed from your credit report.  

Understanding collections on your credit report

Creditors usually send a missed payment to collections once it’s been in delinquency for 90 days, so you don’t have to worry about collections if your payment is a few days late. However, if your debt lands in collections, the consequences to your credit score can be severe. 

A large portion of your credit score calculations, roughly 35%, is derived from the consistency of your monthly payments. A collection account on your credit report demonstrates that you could not make a payment, which can make you look like a risky borrower in the eyes of creditors. On top of the existence of that collection, there’s also the fact that a payment on your credit report was delinquent for at least 90 days. All these negative marks together will significantly hurt your chances of getting approved for a loan or credit card anytime soon.

However, a collections account doesn’t spell out permanent disaster. “It’s essential to understand that a credit report is a reflection of one’s financial history, and while collections can be a negative mark, they are just one component of a broader picture,” says John Owens, executive vice president at Monterey Financial Services.

A collections tradeline will remain for seven years regardless of whether you’ve repaid the debt. As it ages on your credit report, its effect on your credit score will decrease until it falls off entirely. 

“When it comes to collections specifically, you lose points because the collection exists,” says Markia Brown, a certified financial education instructor and a registered financial associate at The Money Plug. “What this means is that even if you pay the collection, if it is still reporting, you won’t see a boost in your credit score. Removing the collection completely is the only way to boost your credit score.” 

Note: Newer versions of the credit scoring algorithms, namely FICO 9, FICO 10, VantageScore 3.0, and VantageScore 4.0, do not include paid collections in their calculations. However, FICO 8, one of the most widely used credit scores among lenders, still includes paid collections in its calculations. 

How can you remove collections from a credit report?

Just because a collections account appears on your credit report doesn’t mean it has to stay there, marking your creditworthiness forever. There are a few different — and completely legal — ways you can try to remove it from your credit report to fix your credit score

Step 1: Ask for proof

There needs to be evidence that the debt is genuinely yours to pay for it to stay on your credit report. “The first step is to verify the debt’s authenticity by requesting a validation letter from the collection agency, which provides detailed information about the debt,” says Brown. “If they cannot prove it is yours or if there are errors, you can dispute it with the credit bureaus.” 

Step 2: Look for and report inaccuracies

Once again, you should never count on creditors or collection agencies to properly evaluate and state what you owe. In some cases, they might even label someone else’s debt as your own.

“Consumers should be encouraged to regularly review their credit reports, not just for collections but for any inaccuracies,” says Owens. “Mistakes can happen, and catching them early can prevent potential financial complications down the road.” 

The process here is similar to if a collection agency is unable to provide proof that the debt belongs to you. Rick Eicheldinger, a certified financial planner and the director of financial planning at Facet, recommends gathering all evidence of inaccuracies and submitting a credit report dispute to the appropriate credit bureaus. “They’re required to investigate your dispute and remove the collection if they can’t verify its accuracy within a certain time frame,” adds Lamine Zarrad, CEO and Founder of personal finance and credit-building tool StellarFi.

While you can file these disputes on your own, you can also hire a credit repair company to file these disputes for you. You can find our guide on the best credit repair companies here.

Note: Credit bureaus do not report medical debt under $500 and don’t report paid medical collections at all. 

Step 3: Ask for a pay-for-delete agreement

It might sound odd, but most things are open to discussion, even debt. In the case of debt sent to collection, you might be able to convince the agency to enter a “pay-for-delete” agreement with you. “This agreement allows you to pay the debt in full or negotiate a settlement amount in exchange for the agency removing the entry from your credit report,” says Brown. She also stresses that you should never start making payments through this deal without clearly stating the terms.

Take extreme caution when committing to a pay-for-delete agreement. These are not legal agreements, so your debt collector is not obligated to follow through with the deletion once you make your payments. Even if your collector follows through with the deletion, the collections account may still reappear on your credit report. You’ll have to wait for the collections tradeline to fall off and rebuild positive credit history on top of your negative marks.

Step 4: Write a goodwill letter to your creditor

You might still be able to get the collections removed even if you’ve already paid your debt without any agreement in place. You can send a goodwill letter to your creditor to remove negative marks. While this usually works better with delinquencies than collections, it doesn’t hurt to try. Your odds of getting your request granted improve if you have an otherwise spotless payment history.

“Although late payment reporting information may remain, having the collection taken off the report can boost your score,” says Eicheldinger. 

Preventing a collections account on your credit report

You might be able to prevent your debt from being sold to a collections agency in the first place. Eicheldinger recommends “keeping the lines of communication open and working in earnest with the creditor.” 

While you can reach out to your creditor directly and propose a repayment plan, looking into non-profit credit counseling may also be worth your time. A credit counselor can contact creditors to negotiate a debt management plan, potentially lowering your interest rate or monthly payments. You can find our guide on the best credit counseling services here. 

Frequently asked questions — removing collections 

Is paying off a debt in collections worth it?

While paying off a debt in collections will not improve your credit or remove the collections from your credit report, a collections agency can sue you for unpaid debt if it’s still within the statute of limitations. This period varies from state to state.

Can you get a debt collector to stop contacting you?

Yes, a debt collector must stop contacting you if you ask them to stop. The CFPB has template letters you can send a collections agency to get them to stop contacting you. Keep in mind that even though a debt collector won’t be able to contact you, you’re still responsible for the debt.

How common are collections on credit reports?

A CFPB report on credit reports in 2022 found 175 million total collections tradelines on credit reports, down from 261 million when the report was last updated in 2018.

Read the original article on Business Insider
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