Financial struggle is a stressor almost everyone will encounter at some point in their lives. Whether it derives from unexpected events or a lack of planning for the future, collections accounts can be a detriment to your current and future financial outlook.
Anyone who has had a debt sent to a collection agency or debt collector and has worked diligently to resolve the unpaid collection understands how frustrating it can be to see this paid debt continually appear on their credit report.
Whether the collections remain as delinquent accounts or paid, having collections on your credit report can harshly impact your credit score and affect your ability to apply and acquire loans from creditors.
The most concerning aspect of collections being reported on your credit report is the ability for the collections to remain on the report for up to 7 years, whether the debt is paid or not.
Allowing a paid debt to affect your credit score for years will make it increasingly challenging to acquire loans for future purchases such as a new home or car. Paying and removing collections from your credit report is the first step in building and improving your credit score following financial hardship.
In this article, we’ll show you how to remove paid collections for your credit report.
How Collections Impacts Your Credit
Unpaid collections occur when the original creditor has tried everything in their power to reach you to pay your bill with them but have come up unsuccessful.
At this point, the lender will reach out to a debt collection agency and hire them to get your original debt and loan payments paid.
The most proactive way to mitigate collections impacting your credit score is to pay your collections before your lender ever has to hire a collections agency.
Once a collections agency is hired to acquire money from you, it is reported on your credit report as negative information so that other lenders can see your ability to pay debts.
Debt collectors are the last option for most firms and represent an egregious unpaid debt that has been outstanding for a long time. Lenders who see collections on your credit report, paid or unpaid, will immediately be flagged to an instance where money lent to you was not paid in the agreed-upon fashion.
Credit is based on a variety of factors, but possibly none more important than your credit and collections history.
Lenders first look to understand your payment history and your ability to pay back collections in a timely fashion, so allowing outstanding or paid collections to represent your credit history on your credit report may come at a huge detriment when looking to acquire a new credit card, loan, or access to the quality interest rate on loans.
5 Ways to Remove Collections from Your Credit Report
1. Do Your Research
Regardless of your financial situation, you should always be prepared and plan to analyze and optimize your credit report. The first step is to understand your finances by keeping your records on your spending and bills to be paid.
The next step in removing a paid collection is to compare your records of your collections and credit history to your credit report issued to you by your lender.
Gather as many details about the paid collection, including the date it was issued and resolved and the parties involved in the collections.
A key factor to look for, which could represent the easiest fix to the credit issue caused by a paid collection, is to see if the debt was paid more than 7 years ago. If this is the case, a call to the collections agency will likely result in the collections being dropped as paid collections should automatically be removed from credit reports after 7 years.
From this point, you will have a well-thought-out understanding of the paid collection you wish to dispute and remove from your credit report, and the next step is to formulate your plan and strategy for removing it.
These steps move you towards a higher chance of acquiring a loan with a reasonable interest rate.
2. Request Goodwill Deletion
If the paid collections happen to occur within the last 7 years, the first tactic to try and remove the collections from your credit report is to request a goodwill deletion.
If your credit history is otherwise in good standing, you may call the original lender or the collections agency to request the removal of the collections on goodwill.
This strategy has no guarantee and is the decision of the creditor or collections agency but being knowledgeable about the collections and confident in what you are asking can increase the likelihood of improving your credit score by removing paid collections.
The goodwill letter can be submitted via written letter, email, or phone calls, but you should explain the situation to the other party and why you request its deletion.
Suppose the lender or collections agency agrees to remove the paid collections. In that case, the credit history and payment history will still remain on your credit record but will no longer cause damage to your credit score.
3. Request Debt Validation
If your request for goodwill deletion is denied or cannot be completed, the next option you have is to request a debt validation. Requesting a debt validation is a right consumers hold under the Fair Debt Collection Practices Act, which refers to a consumer’s ability to challenge a debt or receive documentation on the debt’s status from the debiting agency.
In order for the law to apply to the debt, the validation request must be submitted to the collections agency within 30 days of the collection being issued. After 30 days, most agencies will still provide the documentation but are not required by law to do so.
Receiving documentation that a collection has been paid and is not under dispute may not necessarily remove the paid collections from your credit report or score but is backing your explanation for the debt. When applying for a credit card or a loan from a creditor questioning collections on your credit report, presenting documentation that the collections were resolved can mitigate the damage done to your credit score.
4. Dispute the Collection
There are two ways to dispute a collection: disputing by technicality or disputing by inaccurate items.
Disputing by technicality is the process of diligently going through the collections report, credit report, and collections history to identify any information that is false or inaccurate. In addition, disputing by technicality is often the process of looking for an error made by the creditor or collections agency.
Some of the more common mistakes made by collections agencies include anything the agencies cannot verify or something simple such as the spelling of your name.
Disputing by inaccurate items is uncommon, but if you have done your research, may provide the necessary information for a collections agency to remove the debt from your credit report. If the numbers and payments are wrong on the collections agency’s part, then you may be able to have the collections removed.
5. Pay for Deletion
Paying for deletion of a paid collection from your credit report is the final tactic that should be taken and represents the most drastic method to removing paid collections from your credit report.
This method is utilized exactly as it sounds as you are paying the lender or third-party collections agency to remove the paid collections from your credit report.
If you are denied a goodwill deletion, cannot dispute the collections, and have not yet surpassed the 7-year window to drop a collection, this represents your final option. The old debt’s credit history of late or overdue payments will still be visible to banks giving out loans. However, it will no longer impact your credit score if you and the collections agency reach a pay for deletion agreement.
How Much will my Credit Score Increase if Collection is Deleted?
Payment history accounts for 35% of your credit score. Payment history is based on your ability to mitigate outstanding balances and pay your bills on time and in full.
Individuals with an excellent credit score likely have never had a debt go to collections and have been vigilant in paying bills on time. This action is not always attainable for many people leading to collections charges being reported on your credit report and reflected in your credit score.
If you do your research, understand what you are disputing, formulate a plan to remove the collections, and successfully get approved for the paid collections to be removed from your credit report, your credit score will undoubtedly see an increase.
A single 30-day late payment can have an impact on your credit score up to 100 points. To show how drastic this can affect your ability to gain access to loans, the typical credit score ranges from 300-850 points, so a decrease of 100 points will have a massive impact on your future financial endeavors.
Credit scores are used by banks when approving loans or credit cards to identify how much of a risk they are taking on when lending you money. The lower your credit card is, the greater risk you pose to the creditor, and you become less likely to acquire loans for large purchases before you even set up the meeting.
With the importance of your credit score established, you must understand how paid, or unpaid collections can negatively impact your credit score. This information represents the need to seek to remove collections from your credit report.
If 7 years have passed, or your tactics successfully removed paid collections from your report, you could see an increase of up to 100 points on your credit score (although various factors determine how much your score increases).
There is no fixed number that the credit score will increase by as your credit score is a highly individualized basis of credit history. However, for any person, an increase of 50-100 points significantly increases your likelihood of acquiring loans.
Many individuals suffering from a tanked credit score from negative items will hire credit repair companies to mend their low credit scores. A credit repair company such as Lexington Law or Credit Saint will take the first step to check if you are reporting any paid debts on your credit report and work to remove them from the report.
What Happens if I Can’t Remove the Collection?
If your efforts fail in removing the paid collection on the original account your credit report, then the waiting period begins. 7 years after a collection is resolved, it is automatically removed from your credit report and will no longer affect your credit score.
If, after 7 years, the collection remains on your credit report, you can dispute this with the collections agency, and they will remove the collections.
In those 7 years, however, having well-thought-out documentation of the collections as well as an explanation for late payments will aid you in acquiring loans and credit. Lenders use numbers and credit scores to predetermine if you are a liability to them, but they are still human.
In some cases, a collection on your credit report is an outlier, and this fact can be a focal point in your explanation of why this charge went to collections in the first place.
If your paid collections cannot be removed from your credit report, this means you must work more diligently in the future to prevent any other outlying charge from accompanying the already existent one.
Tips to Improve Your Credit
Improving your credit does not happen overnight. Instead, improving credit is a continual process of staying on top of your finances and understanding the makeup of your credit score.
The first step is to pull a free copy of your credit report and FICO score. You can get a free credit report by visiting Annualcreditreport.com. The Fair Credit Reporting Act gives you a legal right you to pull your credit file of the major credit bureaus for free.
Once you’ve reviewed your credit report, make sure all your outstanding debt is paid off from any credit card issuer, loans and any outstanding medical bill. Credit cards are an avenue of building credit if you can pay the full amount monthly but can have a negative impact if bills remain unpaid.
Once you pay your credit card bill, do not close the card. A common misunderstanding is that once a credit card has outstanding charges, it threatens your credit score and should be paid and closed, but this will only hurt your credit score.
Paying your bills on time, whether a mortgage, a loan or a credit card, can be a massive boost to a continually climbing credit score. However, untimely payment of bills can result in a third-party collections agency getting involved and tanking your credit score.
The most important habit to develop when improving credit is being a diligent observer of your credit history and reports. If any error is found, it could cause harm to your credit score at the hands of someone else and should always be disputed.
No one wants to see their debt go to a collections agency, and no one enjoys seeing collections show up on their credit report. But, unfortunately, for many people who remain uninformed on how credit and collections work, this can seem like an unavoidable reality to their situation.
However, the good news is that there are many tactics and avenues to pursue in minimizing the damages of paid collections to your credit score or removing them entirely.
The main takeaway from the methods described in this article should be that remaining informed, proactive, and diligent when utilizing credit or loans can not only prevent credit score hardship but continually build your credit and credit habits for the future.