How to Remove Collections From a Credit Report

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If you’ve been falling behind on your loan payments for a while, you may start receiving emails, phone calls, and messages from your creditor checking up on your payment status. If this is the case, you officially have outstanding debt.

But don’t worry, in this article, we will explain all about collection debts and how to remove collections from a credit report, so continue reading to find out more.

How Is Debt Collected?

First and foremost, what does debt collecting entail? Collecting debt is the process of collecting payments owed by individuals or businesses. The organization that collects these debts is a collection agency or a debt collector. These agencies collect debts for a certain fee or a percentage of the individual’s debt amount. In certain situations, these agencies are only middlemen and collect delinquent debts to remit them back to the creditors. In this case, the collectors receive a percentage from the creditors, which in most cases is from 25% to 50% of the total amount. But don’t worry, there are multiple ways on how to dispute a collection debt.

When a consumer falls behind on payments, their lender i.e. the creditors will try to internally collect the debt. This means that the debtor will start receiving calls and messages from the lender regarding the debt payment. If this does not work, the creditors have the option to write off the debts and give them over to a debt collector. The debt collecting agency then takes on the responsibility of collecting the debt and contacting the debtor.

The debtor has to receive a debt validation letter stating the amount he/she owes. This letter will also include information on the creditor. This is how you can recognize that this is not a scam. After respectfully contacting the debtor several times to no avail, the collection agency has the legal right to transfer the debtor’s case to court.

DID YOU KNOW: If disputing collection accounts doesn’t stop the debt collector’s constant calls, you have the right to send a cease and desist letter. According to the Fair Debt Collection Practices Act (FDCPA), you can formally request for the debt collector to stop contacting you, and they must respect your appeal.

What Types of Debts Are Covered?

Collection agencies collect all types of debts, such as credit card debt, medical debt, personal and student loans, auto loans, etc.

Credit card debt

Credit card debts are sustained through revolving credit loans. This type of debt is accumulated through multiple credit accounts that vary in credit limits and overall terms. These accounts are tracked by the credit bureaus.

Medical bills

Medical debt is debt related to uncovered health care expenses. This type of debt differs from other types of debt because it does not have to stay on your report for seven years. You can remove medical collections the instant you pay off your medical debt.

Personal and student loans

A personal loan is a type of loan taken by a consumer that aims to cover any type of personal expense such as making renovations, planning a wedding, etc. As for student loans, these are loans meant to cover expenses related to higher education, tuition, living expenses, etc. These types of loans are issued by the federal government, banks, or financial institutions. These student loan debts are collected by collection agencies, and you have to wait seven years to remove collections such as these ones.

Auto loans

Auto loans are a type of secured loan that is borrowed when buying a car, where the car itself serves as collateral. Auto loan lenders have the option to collect the debt internally, by subcontracting to collection agencies or combining both options together.

DID YOU KNOW: In 2020, the average US student loan debt rounded up to over $37,500, with more than half of the American student population going into student loan debt.

How Do Debts End Up in Collections?

First off, what exactly are collection accounts, and can you remove collections from your credit report? A collection account is a type of account that serves as an indicator of a previous failed payment, which the creditors have chosen to either sell to a collection agency or to a debt buyer. Either way, the collector’s goal is to collect the debt from the debtor in full or in part. This collection is recorded on your credit report via the credit report agencies and stays there for up to seven years. In the meantime, you can try to remove the collections report, but that can prove quite difficult.

So, how does a debt end up in collection accounts on credit reports? If a debt is still unpaid 30 days after its due date it goes on record as delinquent. This is when the creditors start calling and reminding you that you have an unpaid debt. After 180 days of unpaid debt, the creditors have the option to sell that debt to a collection agency for a certain percentage of the entire amount. Since the creditors have sold your debt to a collection agency, it is the agency’s job to send you notices about the debt and is the one that will collect it.

DID YOU KNOW: According to Shelly-Ann Eweka, a wealth management director at TIAA, a great solution on how to get out of credit card debt fast is to personally contact the creditor and ask to set up some sort of payment plan that would work for both sides.

What Should You Know About Debt Collections and Dealing With Debt Collectors?

In the US, it’s very easy for people to fall victim to debt collector scams or to paying debt they no longer owe. That is why the first thing you need to receive from the collection agency is a debt validation letter which contains confirming information concerning your debt, the name of the creditor, and how to resolve the debt.

This debt collection letter is supposed to be in your hands within five days of the agency first contacting you. Afterward, you will have 30 days to dispute the debt. You have the right to request official written evidence of your payment from the collection agency.

A common misconception is that a debt collector is supposed to be rude and frighten you into paying your debt. According to the Federal Trade Commission (FTC) and the Fair Debt Collection Practices Act (FDCPA), debt collectors are not allowed to use abusive language and scheming practices when collecting debts. If they do, you can report them directly to the FTC.

Here is some additional information on what a debt collector can and cannot do:

A debt collector can: A debt collector cannot:
Call or send emails, letters, and text messages in order to collect the debt Contact you outside of the 8 a.m. to 9 p.m. time frame
Get in contact with people you know in order to find out your phone number, your address, and your workplace, but just once Give out information about your debt to people other than yourself or your spouse
Harass and threaten you or use profane language when talking to you
Lie or deceive you into thinking you owe a different amount or will be taken to court when that’s not the case or pretend to be the government

DID YOU KNOW: The statute of limitations is a law that provides a time frame during which debt collectors have the right to take legal action against your unpaid debt, such as taking the case to court. This usually lasts three to six years and is only available if you do not try disputing collection accounts during that time.

Is a Paid Collection Better Than an Unpaid One?

Overall, both paid and unpaid collections stay on your credit report for a set period of seven years. During these seven years, if your debt remains unpaid, you are subjected to receiving calls from the creditor or collection agency regarding your debt, and there are not many ways to remove collections from a credit report of this kind. Furthermore, the collection agency has the legal right to legally pursue your debt i.e. take the case to court. This can be achieved within the 3-6 year time frame from the moment they contact you. Your debt drops off by itself after seven years.

If you do opt to pay your debts, you will stop receiving those pesky phone calls from the creditor or collection agency, which is one of the benefits as well as having a higher chance of getting approved for loans and credits. Your collections account will still be on your credit report, however, and you will have to try alternative options in order to fully remove the collections. Some of the options are sending a goodwill letter to remove collections from your credit report or opting for a pay-per-delete.

DID YOU KNOW: There are specific organizations dedicated to intermediate between you and your creditors. They are called debt relief companies and they give you the chance to pay less than the original amount to your creditors in exchange for debt settlement.

How to Remove Collections from a Credit Report?

If you’ve paid your debt and want to remove it immediately or believe you have a mistake on your credit report, there are several options on how you can remove your collections without waiting for that 7-year mark to wear off:

Dispute your collection account

According to the Fair Credit Reporting Act, you have the option to file a dispute directly with the creditors or the credit bureaus if you believe to have incorrect collection accounts. The credit bureaus offer a form which is called a 609 Letter through which you can dispute debt collection. In addition to this, the Federal Trade Commission also offers template dispute letters for you to use. After submitting a dispute, you will receive a final decision after 30 days, during which the credit reporting company investigates whether your claims are true. If so, your collection account will be deleted from your credit report.

Ask for a goodwill deletion

If you’ve already paid your outstanding debt, and want your collection account to be removed from your credit report, you can send a goodwill letter to remove paid collections to your creditors or collections agency. In such letters, it’s best to explain why you are requesting this deletion and give an account of the circumstances at hand. In addition, you could also provide evidence that further proves you’re not falling into another debt in the meantime, such as a record of on-time payments. Although this option does not give a 100% chance of approval, it’s still worth a shot.

Pay-for-delete agreement with the collection agency

In a pay-for-delete, you practically pay in order to remove collections from your credit report. This means that your account will be deleted, however, the negative information gained from the original lender will still remain on your credit report. It’s important to mention that this type of removal is unethical and, at this point in time, soon to go out of practice.

DID YOU KNOW: A way to make sure you know all the details on your collection account is to check your credit reports. Due to the COVID-19 pandemic, AnnualCreditReport.com offers free weekly reports from all three credit reporting agencies until April 20, 2022.

Key Findings

Debt collecting is the process of collecting debt payments owed by both individuals and businesses.
If a debt is still unpaid 30 days after its due date, it goes on record as delinquent and is written off into collection accounts on credit reports.
Collection agencies collect all types of debts, such as credit card debt, medical debt, personal and student loans, auto loans, etc.
A debt collector is legally not allowed to use profane language and scheming practices when collecting debts. If they do, you can report them to the FTC.
Both paid and unpaid collections stay on your credit report for a set period of seven years; the advantages of a paid collection affect other aspects than your credit report.
You can try to remove paid or inaccurate collections from your credit report by filing a dispute with the credit bureau, sending a goodwill letter, or requesting a pay-for-delete.

Removing Collection Accounts from a Credit Report Without Paying

The only way to remove your collections from a credit report without paying is by proving that your collection accounts contain inaccurate collections. This proof can be sent to the credit bureau when you file a dispute. And how to dispute a collection debt? Luckily, forms are available on the credit reporting agencies’ websites. Usually, the investigation process takes around 30 days, so afterward you can expect to receive a notice stating whether your proof has been approved and your collections have been removed. Otherwise, your collections will stay on your credit report for a set period of seven years.

DID YOU KNOW: Credit repair companies can actually help you dispute the debt you have with your creditors by analyzing your full credit report and contacting the credit bureaus in your name. This not only saves you time but is more effective as the credit repair companies have experience in the process and know how to properly negotiate with the credit bureaus.

Will Your Credit Score Increase if You Remove Collections from Your Credit Report?

The general rule states that collections stay on your credit report for up to seven years, starting from the day your account went delinquent. Only medical bills are removed at once from credit reports when paid off. However, some of the more recent scoring models (e.g. FICO 9 and VantageScore 3.0), don’t fully take paid collections into account. That said, the most widely used credit scoring model, FICO 8, does take them into consideration if the debt is over $100.

Collections stay on your credit report for up to seven years, and even if you pay, you cannot simply remove paid collections from your report. After seven years, they no longer affect your credit score. However, if your account has still not reached that seven-year end date, your credit score will suffer more than if you pay the collections off.

Although there is a possibility that your credit score will not change if it’s calculated with FICO 9 or VantageScore 3.0, there are still other benefits to paying off your debts, such as:

  • No more calls from debt collectors
  • Approval for loans and credit cards
  • No risk of getting sued

DID YOU KNOW: One of the most sustainable ways to improve your credit score is to pay out all (if not all, the bigger part) of your outstanding credit card debt. So, although removing paid collections doesn’t happen overnight, it does have its benefits.

Wrap Up

Although it might seem impossible, there are ways on how to remove collections off of your credit report such as disputing your collection account, writing a goodwill letter, or asking for a pay-per-delete agreement with your creditor. If not removed, your collections (both paid and unpaid) stay on your credit report for up to seven years and will damage your credit score. Regardless of the outcome, it’s worth a try when you consider all the benefits.

FAQ

How long do paid collections stay on your credit report?

No matter whether your collection accounts are paid or unpaid, they will still stay on your credit report for a period of up to seven years. After that, your collections drop off of your report and no longer lower your credit score.

How to remove collections from a credit report without paying?

Here are some of the most effective ways of removing collections without paying: you can send dispute letters (but make sure you understand the FCRA and FDCPA requirements beforehand) or hire a collections removal expert to remove it on your behalf.

How to remove unpaid collections from a credit report?

If you want to know how to remove collections from a credit report and they are still unpaid, then the best bet is to just wait out the seven-year period for them to drop off your credit report.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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