How To Remove Collections From Your Credit Report

Introduction

If you don’t pay your credit card bill or other financial obligations, the creditor or lender will probably charge you late fees. If you still don’t pay, they will typically attempt for several months to get payment from you. If you still don’t pay, they will likely charge off your account and send it to collections after six months, or 180 days — and it’s often sooner for certain types of credit.

All of that (the late payments, the charge-off, and the debt collections) usually becomes part of your credit report. Each of those events can negatively impact your credit score on their own, but stacked on top of each other they create an even bigger ding.

Eventually, the negative impact goes away, but it can take seven years or more after it all started. In the meantime, you can do some things to minimize the damage.

How To Review Your Credit Report for Collections

­Under the Fair Credit Reporting Act (FCRA), you have the right to dispute information on your credit report that’s inaccurate, outdated, or unverifiable. That includes the wrong balance, incorrect date, misspelled name, or anything else that’s not accurate.

So the first step to avoiding negative items on your credit profile is to actively monitor your credit report on a regular basis. By law, you can get your credit report from each of the three credit bureaus — Experian, Equifax and TransUnion — once a year. And you can now get all three reports every week from the federally authorized AnnualCreditReport.com.

It’s not unusual to find errors on your credit report, so that’s the first thing you should look for. Secondly, check for things that are accurate but undesirable, like collections activity.

Collections will appear in a dedicated section, usually near the top of the report. Each entry will include the original creditor, the collection agency’s name, the current and original balances, your payment status, and relevant dates.

If you find incorrect information anywhere on your credit report, you can dispute the errors and have them removed. This includes mistakes in your personal info, fraudulent accounts, and inaccurate reporting. Then the credit bureau has 30 days to either verify or remove the error.

How To Remove Inaccurate Collection Information

If you see any collections activity listed that’s not accurate — either it wasn’t your account, or the amounts or dates are off — you can request that it be removed from your report. If the same mistake appears on all three reports, you’ll have to do this with each credit bureau. But the process is free.

• Gather any documentation that proves there’s an error, like the original statements.

• File a dispute online at the credit bureau’s website, or by phone or mail.

• Wait 30 days for the bureau to respond.

Since collections should fall off your report after seven years, you can also request the removal of outdated line items if it’s still there after that time. According to the FCRA, the maximum reporting period is seven years from the date your account goes to collections, plus the six months before charge-off. So that’s usually seven-and-a-half years total from the delinquency, or when you first neglected to pay. However, credit bureaus often count that seven years from the date of your first missed payment instead.

How To Remove Paid Collections From Credit Reports

Once you’ve paid off your debt, it’s natural to want it removed from your record. Normally it will show as “paid” after a month or two. But that could still prevent you from being approved for something else, like a loan or mortgage, in the meantime.

You can write a letter asking the creditor or collections agency for a goodwill deletion. But they don’t have to grant the request, and deleting the collections activity won’t remove the late payments that led to it.

• Include your account number and all the pertinent dates, amounts, and other details of the debt.

• Apologize and acknowledge your financial obligations.

• Describe what circumstances led to missing your payments.

• Explain why you want the debt removed.

• List other on-time payments you have made recently.

• Ask for a second chance through a goodwill adjustment.

• Thank them politely for their consideration.

It’s important to be extremely respectful and professional throughout the whole communication. Remember, you’re asking for a favor.

Follow Up After Removing Collections From Credit Reports

It would be nice to just trust that everything goes according to plan, but it’s best to double-check and follow up if needed. Credit bureaus and creditors both have to respond within 30 days of you making a claim. So review your credit reports after 30 days to make sure the changes or deletions were handled correctly.

Can You Remove Collections From Your Credit Report Without Paying?

Removing a line item from your credit report isn’t a service you can pay for. But if you’re wondering whether you need to pay the debt itself before removal, the answer is “maybe.” It depends on the circumstances.

Your rights under the FCRA apply to having inaccuracies removed from your credit report, but not valid debts and delinquencies. So if it’s not a mistake — meaning it’s your debt, and not the result of identity theft or a clerical error — you need to try a different approach.

Only the first of these involves not paying anything.

•  Wait it out. Accounts in collections usually fall off your credit report after seven years from the date of first delinquency. Depending on the state, that timeframe may also mark the statute of limitations for the debt. If so, it’s called a time-barred debt — meaning you can no longer be sued for it, whether you paid the debt or not. Note that the statute of limitations varies by state, ranging from as short as three years to as long as 15 years.

•  Pursue debt forgiveness. Debt forgiveness, or debt settlement, involves negotiating with the collections agency or creditor. You may not be required to pay the full debt amount — but you’ll typically need to pay at least a portion of it. In exchange, the debt will usually be marked as settled or paid off. Keep in mind that forgiven debts over $600 may be reported to the IRS as taxable income.

Is Paying off Debt in Collections Worth It?

Paying off a debt in collections doesn’t necessarily remove it from your credit report. But yes, it can still be worth it for a few reasons.

• Improved credit: When calculating your credit score, some credit scoring models disregard collection accounts that have been paid. That means they aren’t counted as a negative mark against you. So paying off a debt in collections could potentially boost your credit score under these newer models, like FICO 9 and VantageScore 4.0.

•  Lender perception: Lenders and card issuers often take a more favorable view of a paid debt than an unpaid one, even if it was in collections before you paid it off. The act of paying shows that despite facing financial difficulties, you’re willing to settle your debts.

•  Fewer repercussions: If you have an unpaid debt in collections, you could face a lawsuit, garnishment of your wages, or a levy on your bank account. While paying off that debt reduces the likelihood that you’ll have to face any of these legal consequences, it’s not a black-and-white decision. If you have a debt that’s getting close to your state’s statute of limitations, making a payment on it can restart the clock for when a collector can sue you. However, it won’t reset the seven-year limit for how long the debt stays on your credit report. So before making a payment on old debt, consider whether the risk of a renewed lawsuit outweighs the benefit of settling the balance.

Rebuilding Credit After Removal

Removing a debt from your past is one step, but rebuilding for the future is an ongoing journey. You may want to consider following some proven steps to success.

• Pay on time, every time. Your payment history is the most important factor in calculating your credit scores. So always paying your bills on time is one of the best things you can do for your credit score.

•  Keep credit utilization low. Using only a small portion of your credit limits can help raise your credit scores. Experts recommend using 30% or less of your available credit, and keeping it in the single digits if possible.

•  Be cautious about new credit. It might be tempting to start applying for new credit, but each application is usually a hard inquiry on your credit report. Too many hard pulls, especially in a short period of time, can hurt your credit scores.

•  Use a rebuilding or secured card. Some credit cards are designed for people who are rebuilding credit. If you can’t qualify for one yet, consider a secured card. These tools can help you establish a positive payment history by using them and paying them off on time.

Staying Proactive To Avoid Future Collections

Once the nightmare of dealing with collections is behind you, you’ll want to avoid landing in the same situation again. Here’s how to stay ahead of potential problems. 

• Monitor your credit reports. Since you can now get free copies of each credit report every week at AnnualCreditReport.com, there’s no reason not to check them regularly for any mistakes or suspicious activity. 

• Deal with your debts early. Next time you find yourself on the verge of drowning in debt, be proactive. Contact your creditors to let them know what’s going on, and see if you can arrange a payment plan before the accounts are sent to collections. 

• Keep a budget. It might not be fun, but it’s important to set and keep a budget. Knowing how much you have coming in and going out can help prevent any missed payments. And paying on time can not only boost your score — but should also prevent any accounts from being charged off.

FAQs

How do collection accounts impact your credit score?

Being put in collections can lower your credit score by quite a bit, depending on the score you started with and the amount of the debt. According to FICO, you can lose up to 83 points each time you miss a payment by 30 days, and 180 points on a 90-day delinquency.

You’ll have multiple derogatory line items by the time your account hits collections, including numerous late payments, a charge-off, and an active collections account. So on average, expect a ding of at least 100 points on your credit score. And paying it off doesn’t put those points back.

How long does a collection stay on your credit report?

Collections activity can legally remain on your credit report for seven years, plus the initial 180 days (six months) between account delinquency and account charge-off. So the maximum total time you need to wait is typically seven-and-a-half years. However, credit bureaus often remove it after seven years from the original missed payment instead.

What happens if a collection agency can’t verify the debt?

When you’re notified of a debt from a collector, you can send a debt verification letter asking the agency to prove that it’s yours or provide more information. If they can’t verify that the debt is yours, they legally need to stop their collection efforts, including calling you or sending letters. At that point, you can also dispute the entry and ask for it to be removed from your credit report.

What’s the difference between a charge-off and a collection?

These are two separate but related steps. When you don’t pay a debt for a certain time period — which is often six months, or 180 days of missed payments — the original creditor charges off (or writes off) your account. At that point, the creditor will often choose to sell your debt to a collections agency, and sometimes for pennies on the dollar. Now the third-party agency owns your debt, and you’re officially in collections. Of course, they want to cover their investment, so they’ll try their best to collect money from you.

Bottom Line

Taking your financial future into your own hands requires paying attention, and acting when you can make a difference. None of us can change the past, but we can change the impact it has on us.

If you’ve gone through collections and need to start rebuilding your credit, see if you pre-qualify for a credit rebuilding card. Pre-qualifying lets you see if you may be approved for an offer without impacting your credit score.