How to Remove Collections from Your Credit Report

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Consumers need a good credit rating if they want to buy a house, car or other item that requires a loan. With a bad credit report, it is still possible to get a loan for these items, but the consumer will pay a very high interest rate and may be required to make a large down payment. 

One of the things that make a credit rating low is if the consumer has fallen behind on making payments and the creditor has used a collection agency to try to get the debt repaid. 

Fair Isaac Corporation (FICO) has a new scoring model called FICO 08 that ignores collection accounts that have an original balance of less than $100. There is also the new VantageScore 3.0 credit score that ignores all paid collection and any collections that are under $250 whether they are paid or not. 

Fair Credit Reporting Act

Consumers need to worry about larger debts. According to the Fair Credit Reporting Act (FCRA), collection accounts remain on credit reports for seven years from 180 days after the date of default on the original account. 

Most creditors wait until the bill is 120 days past due before they turn it over or sell it to a collection agency. Once this happens, the collection account will quickly appear on the consumer’s report and remain there even after the account is paid in full. 

Lenders want to see a full credit management history before approving a loan or other type of credit. A collection account on the report means the consumer is a bigger risk for the lender. 

How To Remove Collections From A Credit Report?

• The first step is for the consumer to get a copy of their report from each of the three main credit bureaus, ExperianTransUnion and Equifax and find the collection accounts. 

If any of these are inaccurate or incomplete, they can be removed through a dispute with the credit reporting agencies. They must verify the information with the creditor. If the creditor doesn’t confirm the debt within 30 days, the agency must remove it from the report.

• After the required seven year time limit, the consumer should check with the credit bureaus and make sure any collection accounts are removed. They often make mistakes and not update the report. 

Some creditors try to re-date a debt, so it looks like the debt became delinquent much later than it really did, which will keep the account on the report longer than the required seven years. This can also be disputed. The consumer should have proof of the first date of delinquency. 

• Another opportunity to dispute negative items on a report is when the collectors sell the accounts. This happens approximately every six months. In many cases, the collection agency that is listed on a report is not the one that actually holds the debt. The older collection account can be removed through a dispute with the credit bureaus. 

• The consumer can pay to have the collection account removed from their report. Called a Pay for Delete Letter, it can be sent to the collector. It should clearly present why the consumer wants the entry removed along with an offer to make payment if the entry is deleted. 

The collector should return a signed copy of the letter to the consumer as proof that they agree to the terms. This should be done in writing, and by certified mail, so the consumer has proof that the collector received the letter. 

Once the debt is paid, the consumer needs to check their report to verify if the debt was deleted. If not, the proof of agreement can be shown to the collecting agency.

• A goodwill deletion request is not considered the best chance for the consumer, but it is worth a try. It means the consumer needs to explain that the reason they defaulted on the debt is because of hardship such as a death in the family or loss of job. It is basically asking the collection agency to show some mercy and remove the collection from the report. 

• If the consumer has made every effort to get the collection removed from their report and has not been successful, it is better to pay the debt. A paid debt on a report is better than an unpaid debt because it will show any future lenders that the consumer is serious about his or her financial responsibilities. 

If the consumer has been successful, they need to ask the credit reporting agencies to send them an updated copy of their credit report with the collection account removed. 

Consumers also have the right to ask the credit bureaus to send a copy of the new report to anyone who requested a copy of their report in the past six months, or in the case of an employer, in the past two years.