Remove Collections from Your Credit Report

Ali Zane
 

Over the last 15 years in helping my clients increase their credit scores, I’ve found collection accounts to be the most commonly occurring negative account. As you may know, a collection account may it be a paid collection or an unpaid one, can severely suppress your credit score. Collection companies, when they attempt to collect a debt, must follow the guidelines set forth by the Fair Debt Collection Practices Act (FDCPA) and your state’s statute of limitations for debts. The latter determines how many years a collection company can legally collect on a debt.

Table of Contents

What is a collection agency and a collection account

loans and credit cards and is not a collection agency. Instead, they are the original creditor. However, Capital One may sell or assign a defaulted account to a collection agency like Enhanced Recovery Collections to collect on.

These collection companies may buy these debts from the original creditor for pennies to the dollar if they’re a few years old. For more recent debts the original creditor may assign the debt to a collection company, where they subcontract the collection company to collect on their behalf, without selling the debt. Normally you will get a better settlement on a debt that has been purchased by a collection company.

How long do collections stay on your credit report

Per the Fair Credit Reporting Act (FCRA), legally collections stay on your credit report for 7 years from the time the original debt defaulted. Sometimes the original creditor takes a year or two to transfer the debt to a collection company. In this case, the start of the 7 year period doesn’t change the original default date.

Paying off a collection account will not reset the 7 year period. Similarly, a collection account being transferred from one collection company to another will not reset the 7 year period either.

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Exception for Fraud or Identity Theft Related Items

If you are personal information was compromised or an account was hacked, which resulted in someone else incurring charges under your account, then you have recourse to remove the item without settling.

How long can a debt be collected on and can you be sued for it?

Although collections can be reported for up to 7 years per federal statutes, each state has its own statute of limitations for collections. For instance, in California, the statute of limitations for written contract debts is 4 years, which means if you are a California resident you can only be sued for up to 4 years from the time the debt was incurred.

Normally collection companies will not sue you for debts where you owe a few hundred dollars, they are more likely to sue for debts where you owe a few thousand or more. Companies like Midland Funding, Portfolio Recovery are collection companies most notorious for suing. Do look up the state statute of limitations for debts in your state to determine how long can you be sued for.

Does paying off collection improve credit score?

Unfortunately paying off a collection does not improve your score. In some instances, the score may actually decrease from the status update of that collection on your credit report.

Hence, paying off a collection will not help. Only getting it deleted will repair your credit. The scores you see online at Credit Karma, Experian, Equifax or Transunion or any other website, do not show you the version of Fico scores lender’s look at.

So if you have a paid collection on your credit report, it will be greatly impacting the Fico score lenders use.

STEPS ON HOW TO REMOVE A COLLECTION FROM THE CREDIT REPORT

STEP ONE: Dispute Debt Collection with the Collection Company with a Debt Validation Demand Letter

The FDCPA allows you to challenge any questionable debt by the process of debt validation. Here you demand the collection agency provide proof that establishes the validity of the collection, the amounts, and dates involved, along with their relationship with the original creditor. If they are unable to furnish this information then they could potentially be in violation of the Fair Debt Collection Practices Act.

DEBT VALIDATION LETTER

Fill out this debt validation letter and send it via certified return receipt mail:

Your Name
Address

Collection Company Name
Collection Company Address

Date:

Collection account #: 123xxxx

To whom it may concern,

On a recent review of my credit report, I discovered your company reporting the collection account referenced herein. Pursuant to the Fair Debt Collection Practices Act (FDCPA), I hereby notify you that I am disputing this debt in its entirety, and you are required to provide me with validation of the debt by providing me all of the following information:
– Copy of original contractual agreement bearing my signature
– A clause in the original signed contract that authorizes a third party like yourself to collect on this debt.
– Statements from the original creditor and itemization of monies owed
– Copy of bill showing last default date
– Proof that the debt is valid and collectible and within the statute of limitations for this state
– Proof that you are licensed to collect in my state of residence
– Agreement between your company and the original creditor that authorizes you to collect on this debt

I am also requesting that you cease and desist from all collection activity pertaining to this account. You are only to contact me via mail at the address I have provided herein. I am allowing you a period of 30 days to produce this information. If you’re unable to validate the account, then you are to remove the collection account from my credit reports.

Your failure to act will result in this matter being referred to the Consumer Financial Protection Bureau and the Attorney General’s Office.

Sincerely,

Your Name

STEP TWO: Disputing the Debt with Federal Credit Bureaus

Once the collection agency has received your request for your debt validation letter, then lodge credit bureau disputes with each of the credit bureaus the collection account has been reported to. Instead of disputing the account online with the credit bureaus, you can use this very effective credit bureau dispute letter.

STEP THREE: Checking your Updated Credit Report for Removal of Debt

Wait about 30 days for the credit bureaus to complete their investigation and check your latest credit reports. In the event the collection agency failed to provide you with validation of the debts, the collection accounts should have been removed.

However, in spite of not providing validation if the collection company is still reporting the account then that is a potential violation of the FDCPA and FCRA.

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STEP FOUR: Lodging Complaints Against the Collection Agency

If the steps above do not bring about a deletion then you can lodge complaints against the collection agency with the Consumer Financial Protection Bureau here. Anyone or a combination of the potential violations below can be used to file the complaint and demand a deletion:

1. Collection agency failed to provide you with validation for the debt

2. Collection agency failed to mark the debt as disputed on the credit report

3. Collection agency reported the debt with an incorrect date of last activity on your credit report

4. The collection agency is reporting an account that is 7 years old

5. The collection agency is reporting a paid debt as an unpaid one.

6. The collection agency sent you a collection notice for a debt that was past the statute of limitations for your state and failed to specify that they cannot sue you.

STEP FIVE: Settling a Collection in Exchange for Deletion

If steps 1-4 don’t bring about the desired results, then use this guide to settle the debt in exchange for deletion. Deletion of the account is key, and simply paying the collection account and having it reflected as a paid collection will not help your score.

STEP SIX: Settling a debt with Original Creditor

If the collection company doesn’t agree to remove it, then you can call the original creditor and see if they’ll accept your payment and be willing to withdraw the account from the collection agency, thereby deleting it. The original creditor is likely to do this if you have a case where the original creditor somehow did not communicate to you at the right address, if they have records that bills mailed to you were returned to them or if they miscalculated monies owed etc.

Considerations; To Settle or Not to Settle Collection:
Before considering settling, do a cost-benefit analysis to determine if the amount spent will be worth the bang for the buck. First, check when the account is scheduled to fall off your credit report. The formula for this is to add 7 years to the date the account fell behind with the original creditor. Keep in mind this is not the date the account was sent to a collection.

If you’re unable to figure out the fall-off date, then you should call the credit bureaus and they will be able to tell you this date. Now if you have a $5000 collection that is going to fall off the credit report in a few months, then it may not be worth settling. The older the account the lesser the impact it has on your score.

However, if this debt was less than 4 years old, then you’d get a significantly greater credit score boost by its removal from your credit report. Lastly, if there was a clear error of not communicating to you about the bills being due, then you can lodge a complaint against them with the watchdog agency that oversees the industry in question.

For instance, for medical service providers, you can go to the Department of Health, for utility bills like Verizon and AT&T, you can lodge complaints with the Federal Communications Commission’s Consumer and Government Affairs Bureau.

BEWARE: What Collections not to dispute

You should not dispute any large valid debts that are within the statute of limitations, which you’re unable to pay off, as a debtor may turn around and sue you for it.

However for smaller collection accounts or high dollar collections that are past the statute of limitations for your state, even if the debtor provides proof of the questionable debts, you cannot be sued for it.

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How to remove paid collections from credit report

The same process can be used to remove paid collection accounts that are questionable as well. You can utilize both the credit bureau dispute letter and the debt validation letter. However, you can also call the collection company and see if they’ll be willing to remove it as a courtesy.

The Final Step: Take Action to repair your credit

Now comes the time to figure out what to do about this problem. Take action now!

From experience, I can tell you that the sooner you take action to address collections, the better the chances of success.

If you’re too overwhelmed or feel you may not have the time to do this, you may want to consider the help of a credit repair specialist.