Debt collection accounts on credit reports can ruin a credit score, especially if they are recent.
If you have a collection account on your reports you’ve probably already figured out it’s one of the worst types of entries that negatively impacts your credit scores.
Here are some actions you can take:
5 Tips to Handle Collection Accounts
1. Decide if you want to dispute collection accounts
Before you dispute a collection account on your credit reports consider that older collection accounts that have been sold from one junk debt buyer to another are probably in the best position for a successful dispute.
Some debt collectors are fly-by-night companies that frequently go out of business.
Do a little research to see if the debt collector still exists. If a debt collector has ceased collection efforts, the collection account must be removed from your credit reports.
2. Consider full payment in exchange for deletion when the account is recent
If the collection accounts are fairly recent like within the last 12 to 18 months, consider a payment in full for deletion offer.
You can make an offer to pay, conditional upon their agreement to delete their reported collection account from your credit reports.
Keep in mind, debt collectors don’t have to remove accurate entries from your credit report but many will in exchange for payment.
3. Settle the collection account for less in exchange for deletion
Typically, the older a collection account (2 or more years) the more difficult it becomes to collect.
Junk debt buyers know this and just want some money.
They will often settle debt for almost any amount because they have literally paid pennies on the dollar for the debt.
Negotiate with the debt collector to have the account deleted from your credit report in exchange for settlement.
Use the fact they the debt collector paid pennies on the dollar for the debt and make an offer to settle based on that fact. Check out how to settle debt for pennies on the dollar.
4. Consider doing nothing if collection accounts are 48 months or older
As a negative account ages the less it affects your credit scores. Collection accounts that are 48 months or older, may actually be adding age to your credit score.
Length of credit history is part of your credit score. FICO scoring system likes aged accounts. Plus, once you reach out to a collection agency about an old debt, they can update the “date of last activity” in your credit files.
When the date of last activity is updated, it causes the account to look more recent. This can “temporarily” hurt your credit score.
If you decide to settle or pay an old debt without getting the account removed from your credit reports, you run the risk of having a recent paid collection on your credit file.
The time the debt is supposed to be deleted does not change but the “date of last activity” can change; and, for some reason the credit scoring system views it as recent negative activity.
5. Contact the original creditor to see if they will take an offer to settle
If the original creditor still owns the debt and has only assigned the debt, make an offer to pay the original creditor. It’s in the original creditor’s authority to terminate their agreement with the collection agency to deal directly with you.
Termination requires the debt collector to delete their collection account from your credit report if they are no longer assigned the debt.
One more tip on collection accounts
You should check your state’s statute of limitations on credit card debt. The reason is you want to see if you can be sued for the debt.
Once the statute of limitations has passed you can no longer be sued in court. You still owe the debt and it can appear on your credit reports for 7 years but you no longer have to worry about a judgment or wage garnishment. If the debt has not passed the statute of limitations a collection agency can take you to court.
Final thoughts
You can improve your credit score by getting these collection accounts deleted from your credit reports.
If you agree to pay in full or make payments then keep these tips in mind:
- It does not improve your credit score to settle an old debt unless the item is completely deleted from your credit report. If you can agree to a deletion get all agreements to delete the accounts entirely off your credit report in writing prior to paying any amount towards the debt.
- If you decide to settle the debt then by all means do so but make sure it is in your budget to pay and ask they list the item as: “Paid” and not as “Settled”. Both still end up in the negative category of your credit reports but “Paid” looks better than “Settled.” There are instances where you absolutely must pay a collection account especially if you’re in the market for a mortgage loan.
- Do not provide bank account or credit card account numbers, only pay by Cashier’s check or Money order. Keep originals of all agreements.
