Collections accounts are quite damaging to your credit reports. A single collection account can reduce an otherwise excellent credit score (760 or higher) by as much as 100 points. For this reason, it is very important to understand how collections come about, and what you can do to resolve them.
Below, we’ve detailed 6 strategies to successfully address collections from your credit reports. Which strategy makes the most sense for you will depend on the specifics of your particular collection account.
What Are Collections, And How Do They Work?
First, it is important to understand exactly what a debt collection is, and how it comes into existence. If you fail to pay a debt after either 120 or 180 days (depending on the type of debt), the account is written off or charged off by the debt collector. This means that the credit card issuer treats the account as a loss, for tax purposes.
After that, the debt can be turned over to a debt buyer or debt collector, allowing them to collect on the debt. There are important requirements a debt buyer or collector must meet, before being allowed to formally collect on a debt. We’ll review those later.
What is the difference between a debt buyer and debt collector? Basically, a debt collector is hired to collect on a debt, but the original creditor still owns the debt. Debt buyers, on the other hand, own the debt – meaning, the original creditor no longer has any right to take action on the debt. This is an important difference, for reasons we’ll also review later.
What types of unpaid debts might end up in the hands of debt collectors or debt buyers? A large variety of debts, including unpaid utility bills, medical bills, credit cards, personal loans, student loans, gym memberships, and of course, unpaid balances from auto repossessions, can all be placed with debt buyers or collectors.
Method #1: Demand Validation Of The Debt
The Fair Debt Collection Practices Act (FDCPA) is a federal law, which regulates the conduct of debt collectors. Within five days of formally beginning efforts to collect on a debt, a debt collector or debt buyer must provide you with a notice, informing you of your right to request validation of the debt.
You have 30 days (from when collections efforts begin) to request validation of the debt. During that time, a collector may not engage in any collections efforts, including reporting the debt to credit bureaus, until they’ve provided proper validation of the debt. If you fail to request validation within 30 days, a collector is allowed to resume efforts to collect on the debt.
In your debt validation letter, you should request a variety of information. You’ll want to make sure that a debt collector has a right to collect on the debt – that is, they were either hired by the original owner of the debt, or that the debt was sold to whoever is collecting on it. In many states, a debt collector or debt buyer is also required to have a license to collect on a debt – that is, authorization from the state.
You should also demand proof of the amount you owe on the debt, as well as payment history for the debt. In many cases, a debt collector might add on extra interest, or otherwise miscalculate how much you owe.
You should find out the date of first delinquency on the debt, so that you can assess whether the debt is too old to appear on your credit reports. The date of first delinquency is when you first stopped paying on the debt.
An item cannot appear for more than 7.5 years after you first stopped making payments on the debt. Sometimes, collectors (either deliberately or by accident) misstate the date when a debt first went delinquent. As a result, the account remains on credit reports for longer than expected.
Courts across the country have taken a mixed approach to what exactly is required in a debt validation letter. Some have taken a stricter view (that debt collectors are required to provide a variety of detailed information), while others have taken a more lax approach, and not held debt collectors to a high standard.
Regardless, it makes sense to ask for as much information as possible. In many cases, this can lead to a debt collector realizing you’re an educated consumer, and thus backing off. In other instances, it helps create a stronger case for future legal action.
If you never recieved a debt validation notice, then a collector has likely violated your rights. In such a situation, you should speak to an attorney who specializes in the Fair Debt Collection Practices Act (FDCPA). We’ve discussed in more detail below, how you might go about finding an attorney to assist in this process.
#2: Find Out If A Debt Collector Violated Your Rights Under The Fair Debt Collection Practices Act (FDCPA)
As mentioned, the FDCPA places a variety of restrictions on the conduct of debt collectors. If a debt collector violates these rules, you can sue them in federal court. If you win, you’re eligible for damages of $1,000 per violation, as well as your attorney’s fees. Essentially, this means that you can hire an attorney, who sues a debt collector on your behalf, wins you money – and you won’t have to pay for the lawyer.
For example, the FDCPA states that a debt collector may not call you before 8 AM or after 9 PM. If they contact your place of work, they may not disclose (unless asked) that they’re a debt collector. Debt collectors are also barred from using abusive or threatening language, or making threats to do something which they have no plans of doing (such as suing you over a debt). If you ask a debt collector not to call you, they must cease contact immediately.
If you think a debt collector might have violated your rights, you should speak with a consumer rights attorney, who specializes in the FDCPA. Such an attorney can sue a debt collector in court, and as part of a settlement, negotiate deletion of the account.
You can locate an FDCPA attorney in your area by contacting the National Association of Consumer Advocates (NACA), which is the largest association of attorneys who specialize in consumer rights law (including debt collection issues). You might also visit Avvo, where you can find local attorneys who focus on these issues.
Method#3: Find Errors In How A Debt Is Reported To Credit Bureaus, And Seek Deletion Of The Debt
The Fair Credit Reporting Act (FCRA) is another federal law, which controls the accuracy of information which is reported to credit bureaus. Specifically, the FCRA requires that every piece of information on your credit reports be as accurate as possible, be verifiable, and not out of date. If not, this information must be corrected or deleted. With so many credit reports containing serious errors, these requirements are often not met.
As unfortunate as this situation is, you can use it to your advantage. If you believe that the collection account(s) on your credit reports are not accurate, verifiable, or are out of date, you can dispute this information with the credit bureaus, and with the debt collector directly.
You should first write a letter to each credit bureau, telling them that you want an account investigated, to make sure that every piece of the account is 100% accurate. The credit bureaus will contact the debt collector, and ask them to confirm that each piece of information is in fact accurate. In some cases, this alone will lead to deletion of the account.
Most of the time, the debt collector will respond to the credit bureaus, and verify that most of the information on the collection account is correct. In some cases, they’ll update certain parts of the account.
This is actually good news. You now have an official document from the credit bureaus, stating that they performed a reinvestigation of your account, and that the information which appears on your credit reports is in fact accurate.
Yet, if inconsistencies or errors remain on the account, it means that the credit bureaus and/or data furnishers have not in fact performed a proper reinvestigation. You can point out these inconsistencies, and threaten legal action, and often have erroneous negative items removed from your credit reports.
What sort of information on an account might be incorrect? Pretty much any particular piece of information which appears on an account might be wrong.
The date an account was opened or closed could be a mistake, as might be the term of the account, or the date when a payment was last made. In some cases, different credit bureaus will report different pieces of information – we’ve seen cases where each bureau reported a different balance owed on the account.
If you see variations between credit bureaus, in terms of how a single account is reported, you should print out copies of each credit report, and highlight the variations, sending them to credit bureaus, as well as the debt collector. If a debt collector’s records don’t match what a credit bureau has listed, this should also be pointed out to the credit bureaus, and is further grounds for removal of the account. After disputing various aspects of an account, you might also want to file a complaint with the Consumer Financial Protection Bureau (CFPB) as well as your state’s attorney general.
When you find errors or inconsistencies in how an account is reported, it also makes sense to speak to an attorney who specializes in debt collection and credit reporting issues. Again, you’ll want to visit NACA or Avvo to find someone. Serious credit reporting errors, after disputing an account multiple times, can be grounds for a lawsuit, against a credit bureau, as well as a debt collector.
Method#4: Settle a collection in exchange for deletion of the account (“Pay for delete”)
Normally, when you pay a collection, the account will be marked as “paid and closed.” It will remain on your credit report, and continue to have a negative impact on your credit score.
For this reason, you’ll ideally want an account to be deleted from your credit reports, after you pay the account. That is, you’ll want to negotiate deletion of the account, in exchange for payment.
You can negotiate deletion of the account, through a tactic known as “pay for delete.” Essentially, you ask a debt collector to delete the account, after you’ve paid it. In theory, this should be easy. After all, debt collectors only make money if you pay them, right? However, quite often, this is not as simple as it might sound.
Many debt collectors have signed agreements with credit bureaus, promising not to delete accounts in exchange for payment. If a collector violates this agreement, and is caught, they could lose their right to report accounts to credit bureaus, which would be quite harmful to a debt collector’s business.
To overcome a debt collector’s refusal to delete an account in exchange for payment, you still have several more strategies worth trying. If a debt collector offers to settle a debt for less, you might instead offer to pay the full amount on the debt, in exchange for deletion of the account. It is hard for debt collectors to turn down more money.
When repaying a debt, many folks ask for payment plans, choosing to repay the debt in small installments, over a period of time. While debt collectors often agree to such plans, they prefer lump sum payments, where the required amount of money is paid in one sitting. You might offer to make a lump sum payment on the debt, in exchange for deletion of the account.
If a debt collector doesn’t agree to delete a debt in exchange for payment, don’t worry. You still have another powerful strategy available: settling and then disputing the debt.
Method#5: Settle & Delete
When you settle a collection, the account will be marked as paid. While this means that you can no longer be sued on the debt, the collection remains on your credit reports, and continues to have a negative impact on your credit score.
Fortunately, it is much easier to remove paid collections, as compared to unpaid collections. Why? Each time you dispute information with a credit bureau, the credit bureau will send an email to the debt collector, asking them to verify whether the information being disputed on the account, is in fact correct. This is done through a computer system called E-Oscar.
E-Oscar charges debt collectors a small fee, each time they respond to a credit dispute. Given how many credit disputes debt collectors recieve, they prefer to focus their money on responding to those disputes where a debt remains unpaid, rather than those which are already settled.
When a debt has already been paid, collectors have far less incentive to get involved. When you dispute an item multiple times (that is, you dispute various parts of the account), a collector has even less incentive to continue spending money responding. As a result, it is quite possible to obtain deletion of paid collections, when you’re persistent in attacking the account.
Method #6: Settled The Debt With The Original Creditor, & Ask Them To Recall The Debt
When a debt is turned over from an original creditor (the company whom you had the account with) to a third party, several different arrangements are possible. In some cases, the original creditor will hire a debt collector. The debt collector is usually paid a percentage of each debt which is paid or settled, thanks to their efforts. In other cases, a creditor might sell a debt to a debt buyer, often for as little as 5% to 10% of the amount owed.
Your first task is to find out whether your debt is held by a debt buyer or a debt collector. If you read your credit reports, and aren’t sure, you can research online, or simply call the debt collector, and ask them whether they own the debt, or are just a collection agency.
If your debt is held by a debt buyer, disregard this strategy. Since the debt buyer now owes the debt, there’s no point in asking the original creditor to take back the debt.
However, if a debt collector is involved, you’re in luck. First, you’ll need to contact the original creditor, whether that is a credit card issuer, medical provider, personal lender or other lender. Let them know that you would like to settle the debt.
In many cases, they will tell you that you have to pay the collection agency. Be persistent, and tell them that you’d like to pay them directly. Offer to settle the debt for more than they are offering, if needed. Just as with debt collectors, it is hard for debt collectors to say no to more money!
If a creditor agrees to this deal, then you’ll want to ask them to recall the debt. Basically, this involves the creditor contacting the debt collector, and informing them that they will terminate collections on the account, and bring the debt in-house again.
This means that the collector can no longer report the debt to credit bureaus, or otherwise try to collect. As a result, the debt is removed from your credit reports.
It is very important that once the debt is recalled, you pay the amount you agreed to. Otherwise, the debt can once again be placed on your credit reports, and you’ll be right back at square one.
The Final Word
As you can see, there are a powerful range of strategies to help you remove collections from your credit reports. While there are no surefire ways to remove collections, and every case is different, using these strategies greatly increases your chances of removing collections, and thus improving your credit score.
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