Collection accounts are the most common reason for having a bad credit score. Whether it’s paid or unpaid, if you have it on your credit report, it can affect your score negatively.
Once you apply for a credit card or a loan, your original creditor might transfer your account to a collection company if you failed to pay on time. These collection companies will be the ones to contact you and ask for the payment. Collection companies are required to follow the guidelines of the Fair Debt Collection Practices Act (FDCPA). They must also abide by your state’s regulations in terms of debt collection.
If you find a collection account on your credit report, it’s better to take action to remove it. Read on to find more about the collection account and the steps on how you can fix your credit report.
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What do collection agency and collection account mean?
The collection agency, or also known as a debt collector, is a third-party body that collects debts and does not issue credit or loans.
Creditors often sell or transfer accounts to a collection agency if the unpaid debt is already a few years old. The collection agency will be the one to contact you and collect payment on behalf of your original creditor and usually offer a better payment plan.
If you fail to settle the debt, a collection account will appear on your credit report. It will also affect your credit score negatively. You can dispute a collection account if you think it’s an error. But if not, you can settle the payment and then request for a deletion of the collections on your report to improve your credit score.
How long does a collection account stay on the credit report?
According to the Fair Credit Reporting Act (FCRA), it takes 7 years for the collection account to fall off your credit report from the time the debt was made. There are cases when the creditor takes a year or two before they transfer the debt to the collection company. However, the original date won’t change and will not reset from the date when your account was transferred.
What to do for a collection account caused by fraud or identity theft and other related items?
Unexpected things like fraud or identity theft can also be the reason for having a collection account on your report. If you found a collection on your credit report and you are sure you don’t have any existing debt, it can be that your personal information or account was compromised. In this case, you can process the removal of the item without the need to settle any payment.
How long can a debt be collected? Can you be sued for it?
Most collections accounts can be reported for up to 7 years. But it varies for each state as they have their regulations and limitations when it comes to collections. Like for example, in California, their limitations for debt contracts are up to 4 years. Thus, within this period, a California resident can face a lawsuit for 4 years from when they incurred their debt.
However, collection companies won’t sue you if you only have a debt of a few hundred dollars. In case your debt is higher than a few hundred dollars, check with your state’s statutes for debt limitations.
Does paying off collections help improve your credit score?
The quick answer: No. There are some cases where updating your debt can even decrease the score, so settling the payment won’t help. The only way to improve your credit score is to remove it entirely from your credit report.
Checking your score online with the credit bureaus–Equifax, Experian, and TransUnion–doesn’t show the Fico score that creditors access. Thus, if you decide to pay the collection on your credit report, it can affect the score the creditors use.
Steps for removing the collection from credit report.
Step One: Dispute collection using a debt validation demand letter
You have the right to dispute any questionable debt with the use of a debt validation demand letter. The FDCPA allows you to demand from the collection agency any proof to validate the collection, the amount of debt, the date when it was incurred, and the connection of the agency with the original creditor.
If the collection agency can’t release all the necessary information, it implies they violated the Fair Debt Collection Practices Act.
To create a debt validation letter, here are the details you need to fill out and a template you can use.
Collection Company’s Name
Collection Company’s Address
Collection account no.:
To whom it may concern,
I have reviewed my credit report and found a collection account referring to your company. With this, I want to dispute the debt entirely following the Fair Debt Collection Practices Act (FDCPA). I want to request validation of my debt and provide me with the following information:
– Original copy of the contractual agreement with my signature
– A clause from the original signed contract giving authorization to a third-party body, like your company, to collect this debt
– Original creditor’s statements and an itemization of the amount of money owed
– Billing copy showing the last default date
– Proof showing the debt is valid and collectible within the statutes and limitations of my state of residence
– Proof of license to collect debt in my state of residence
– Agreement between you and the original creditor authorizing you to collect this debt
I would also like to request you refrain from all collection activity for this account. You may contact me via mail at the address I have provided in this letter. Please process my request and produce all the information for validation within 30 days. If you can’t validate the account, may I ask you to please remove the collection account from my credit report?
Your failure to act on this matter can be referred to the Attorney General’s Office and the Consumer Financial Protection Bureau.
Step Two: Dispute the debt with the federal credit bureaus
After the collection agency receives your debt validation letter, you should dispute it with the credit bureaus as well. Make sure to dispute it with every bureau that reports it. By visiting each of the bureaus’ websites, you can make a dispute online. However, it’s better to send a letter and mail it to them directly.
Here’s a template you can use to write a credit bureau dispute letter:
Name of Credit Bureau
I am writing this letter to dispute a collection account I found on my credit report. I am requesting that the item be removed.
Attached with this letter are the copies of my (write all the supporting documents necessary to support your claim).
Please investigate this matter and (delete/correct) the disputed item as soon as possible.
Make sure to send the letter by certified mail and have a return receipt requested for proper documentation. Also, include copies of all applicable enclosures and save copies for yourself.
Step Three: Check your credit report for updates
After 35 days of waiting for the result of the credit bureaus’ investigation on your dispute, you may check if there are any updates on your credit report. In case the collection agency failed to validate your debt, the collection account should be removed from your credit report.
There are incidents when the collection agency still reports the account on the credit report even if they didn’t manage to provide validation. It’s a clear sign they are violating the FDCPA and FCRA.
Step Four: File a complaint against the collection agency
If the above steps do not result in the deletion of the collection account, then you can file a complaint. You should file one especially if the collection agency failed to provide validation. Submit a formal complaint against the collection agency to the Consumer Financial Protection Bureau.
To know exactly when to submit a complaint and demand a deletion, these are the potential violations to look for:
1. The collection agency failed to provide validation of your debt.
2. The collection agency failed to note the debt has been disputed on your credit report.
3. The collection agency reported a wrong date of the last activity of your debt on your credit report.
4. The collection agency is still reporting an account that is already 7 years old.
5. The collection agency is reporting unpaid debt even though it is already paid.
6. The collection agency sent a collection notice to you outside the limitations of your state’s regulation regarding debt.
Step Five: Settle the collection account in exchange for deletion
If the above steps failed to yield your desired results, you can settle the debt in exchange for account deletion and improve your credit score.
Step Six: Settle the debt with the original creditor
There are instances when the collection agency refuses to remove the account. In this case, you can contact your original creditor to see if they will allow you to settle the payment with them. In return, they will withdraw the account from the collection company and delete it entirely.
This step will only work if the original creditor is somehow at fault in informing you about your debt. Like for example, they have sent your bills to an incorrect address. Or if they have miscalculated the amount of money you owe them.
Things to Consider Before Settling a Collection Account
First and foremost, analyze your situation accordingly. Ask yourself, if you choose to settle the payment to delete the collection account, is it worth it?
To answer that, you must know when your debt will fall off? The original date of the delinquency will start the moment you first failed to pay your debt. From then, you can count 7 years before the debt will fall off from your credit report. Remember, there will be no changes in the date once your account was sent to the collections. If you can’t determine the date of your debt, you can call the credit bureaus and ask them about this.
To better understand, here’s an example. Let’s say you have a $5000 collection account which will fall off from your credit report in a few months. You can just wait until the fall-off date occurs and not settle the amount.
But if your debt is less than 4 years, you need to process the removal of the collection account as soon as you can. It’s because it can highly improve your credit score.
When is the time you can’t dispute a collection account?
If you see a collection account on your report and you want to dispute it, here’s a reminder for you. You should not dispute valid debts with large amounts you can’t pay off, especially if it’s within your state’s limitations. If you do this, the debtor might sue you for it.
But for smaller accounts past the statute limitations of your state, they cannot sue you for not paying it right away. This applies even if the debtor provides proof of the debt you disputed.
What should you do to remove paid collections from your credit report?
The process is the same as for the unpaid collection. You can submit a debt validation letter and a dispute letter to the credit bureaus. You can also contact the collection company instead and ask if they can remove the account as a courtesy. Mention that you already paid the debt.
Take action and repair your credit report.
The process may be too overwhelming for you. That’s why contacting a reliable credit repair service can help you ease the burden. You may contact 007 Credit Agent and have an expert in credit repair do the job for you.