Encountering a collection account on your credit report can be stressful. The impact on your credit score and your ability to secure loans and credit cards could be significantly hampered. Yet, it's not an unalterable situation. Understanding how to remove a collection account after it's been paid off can help relieve this stress and potentially improve your credit score.
Understanding Your Credit Reports: Identifying Collections
The first step in rectifying the situation is to understand which credit bureaus have logged the collections. The three major credit bureaus - Experian, Equifax, and TransUnion - are the entities you need to focus on. You can procure your credit files from all three bureaus via AnnualCreditReport.com. As a relief measure through 2023, these reports are available for free on a weekly basis. However the report from AnnualCreditReport.com will not include a credit score. Experts like CEO of Credlocity, Joeziel Joey Vazquez, recommend getting your credit report and score. The use of CredlocityIQ.com can provide you with a solid monitoring method and most up-to-date credit score and report.
Your credit report will provide comprehensive details about any collection account, such as the original creditor, collection agency, and payment status. While some creditors manage collections internally, others employ collection agencies to recover delinquent accounts.
Paid collection accounts typically remain on your credit report for seven years from the original delinquency date. This date is when you first missed a payment and failed to bring the account current thereafter.
To make sure that the collections are valid, compare the information on your credit report with your financial records. Here are some points to consider:
Is the payment status correct (paid vs. unpaid)?
Do these collection accounts belong to me?
Should these accounts still be on my credit report?
Dealing with Incorrect Collection Accounts
If you spot any inaccurate collection accounts on your credit report, you'll need to substantiate your claims.
Preparing Your Evidence
Relevant documents that can support your claim include:
Evidence of payment, such as canceled checks, bank or credit card statements, receipts, or letters confirming payment.
Record of interactions, including dates of communication with the creditor or collection agency, the person you spoke to, and the result of the discussion.
Identification documents, like your driver's license or utility bills that correctly display your name and address.
Challenging Old or Incorrect Information
For disputing old or incorrect information with the credit bureaus, the account in question should fulfill at least one of these conditions:
The original delinquency date is at least seven years old.
The account does not belong to you.
There is an error, such as an incorrect balance or payment status.
If the account satisfies any of these conditions, you can send a dispute letter to the creditor or collection agency that reported the information to the credit bureaus. You should also file a dispute with each credit bureau that shows the inaccuracy. This could mean filing up to three separate disputes.
Online dispute filing is relatively straightforward, but disputes can also be filed via phone or mail. The free dispute letter template provided by the Consumer Financial Protection Bureau can be used for this purpose. Attach copies of your supporting documents with each dispute.
Once a dispute is filed, the credit bureau is obligated to prove the accuracy of the information on your report. Unfortunately, credit report errors are not uncommon, ranging from misspelled names to transposed account numbers that result in someone else's collection account appearing on your report.
By law, data furnishers are required to investigate and respond to a dispute within 30 days. The credit bureaus also typically have 30 days to investigate a dispute and must inform you of the investigation's results within five days of its completion. Your dispute could lead to the account being updated or removed from your credit report.
If the data furnisher or credit bureau determines the information is accurate but you disagree, you may need to reconsider your approach. You could file another dispute with additional evidence or include a statement on your credit report indicating your disagreement.
Managing Valid Collection Accounts
If you're contemplating disputing a legitimate collection account in hopes that the credit bureau will delete it, it's important to remember that deception is generally not a good strategy. As Krisstin Petersmarck, a fiduciary investment advisor representative with Bridgeriver Advisors, says, "Generally, negative but accurate information cannot be removed from your credit report. If an organization claims they can remove information from your credit report that is current, accurate, and negative, it's likely a scam."
However, you do have some options.
Requesting a Goodwill Deletion
If your collection account is paid in full but hasn't reached the seven-year mark, the creditor or collection agency may agree to remove the account from your credit report if you request a goodwill deletion. Although this outcome is rare, it's worth a shot.
In this case, you should send a goodwill letter directly to the creditor or collection agency, stating your request.
Waiting for the Seven-Year Mark
Collections generally remain on your credit report for up to seven years from the original delinquency date. While waiting can be frustrating, it's not all doom and gloom. After two years, negative items, including collection accounts, begin to have less of an impact on your credit.
From July 2022, all three credit bureaus stopped reporting paid medical collection accounts on consumer credit reports. And starting in the first half of 2023, they will no longer include medical collection accounts under $500 on credit reports, whether paid or unpaid.
Reviewing Your Credit Report for Changes
After requesting a change or reaching the seven-year mark, it's crucial to ensure your credit report updates. If you've successfully disputed a collection account, you will be able to review an updated version of your report.
If you're waiting for an account to drop off your report, note the date the account was first reported as delinquent. Then, set a reminder at the seven-year mark to confirm the account has been removed. If it hasn't, you can file a dispute with the necessary credit bureaus to have the account removed.
Impact of Collection Accounts on Your Credit Score
Since credit scoring agencies consider collections as part of your payment history when calculating your credit score, collections can negatively affect your score. However, the impact of paying off collections on your credit score varies by the scoring model.
For instance, FICO states that more recent collections generally have a larger impact on your score. Yet, paying off a collection account could raise, lower, or have no impact on your score.
VantageScore 3.0 and 4.0 ignore paid collection accounts, so paying off collections could result in an increase in your score.
The key takeaway? To improve your credit score, ensure you pay all your bills on time and practice other good credit habits. While paying a collection account in full could give your score a boost, generally, increasing your credit score takes time.
How Can Credlocity Help?
Credlocity is a trusted and reliable service that can assist in removing stubborn collections from your credit report. By publishing informative blogs and articles, Credlocity helps the public understand how to enhance their credit. The team at Credlocity can aid in disputing erroneous collection accounts and provide guidance on managing accurate collection accounts. With their assistance, navigating the potentially stressful journey of improving your credit becomes a smoother and more manageable process.
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