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Typically, the only way to remove a collection account from your credit reports is by disputing it. But if the collection is legitimate, even if it’s paid, it’ll likely only be removed once the credit bureaus are required to do so by law.
There are 3 collection accounts on my credit reports. I’m working to improve my credit and I was wondering, what is the best way to get the accounts removed from my reports? If I pay the accounts in full, will they be erased?
The question above is a very common concern for consumers who are looking to rebuild damaged credit. Unfortunately, the answer to the question will frustrate and disappoint most consumers as well.
We’ll start with a quick overview of how you might be able to remove a collection from your credit reports. After that, we’ll go into a bit more detail as to why it may not happen.
If you’re concerned about a collection account that you found on a certain credit report, check your other reports to see where else the information has been reported.
Is the collection account legitimate — a past-due debt that you actually owe(d)? If it is, you’re going to have a tough time getting it removed from your credit reports. However, if the account is actually incorrect, or should have been removed from your reports by now, then you may be able to get it removed through the dispute process.
There are a few ways to handle a collection account on your credit reports.
A collection account can severely damage your credit, but it’s important to remember that this impact is temporary. Manage your credit wisely otherwise, and you should be able to recover in time.
The fact is that a collection account will not be removed from your credit report just because the account has been settled or paid.
Even after a collection account has been paid, the credit bureaus are still legally allowed to continue to report the collection for up to seven years from the date of default on the original account, thanks to the Fair Credit Reporting Act.
To put it another way, a collection account can remain on your credit reports for up to seven years from the date the original account became 180 days past due, regardless of whether the account has a $0 balance.
If you have an unauthorized or otherwise unverifiable collection account on your credit reports, you can submit a 609 dispute letter regarding that account. This will force the credit bureaus to attempt to verify the account. If they can’t, they’ll have to remove it from your reports. But take note that this won’t erase your debt; it just removes the record from your credit reports.
In case you’re wondering whether you can ask a collection agency to delete a collection account early from your credit reports as part of a settlement agreement, you’ll probably be disappointed again. Collection agencies typically won’t agree to this type of settlement, which is known as “pay for delete.”
Why not, especially if doing so might entice more people to pay off old debts? The reason collection agencies generally won’t agree to delete paid or settled accounts is because the credit bureaus (Equifax, TransUnion, and Experian) ask them not to.
Collection agencies sign agreements with the credit bureaus to obtain the right to report the collection information they want included on consumer credit reports. After all, adding negative collections to credit reports is a big way that collection agencies put pressure on people to pay their old debts.
For example, someone might not care about an old medical bill that a collection agency is calling and writing them about. But if that old bill turns into a collection account that lowers her credit scores and gets her denied for a loan, suddenly things change.
So, as mentioned, collection agencies sign agreements with the credit bureaus to get those negative accounts added to consumer credit reports. In those agreements, collection agencies generally promise not to request the deletion of collection accounts simply because they are paid. Rather, per their agreements, they should only request deletion if an account is truly inaccurate.
No collection agency wants to lose the right to report information to the credit bureaus. That could put it out of business. As a result, most collection agencies take those agreements they sign very seriously.
You might hear that it’s illegal to delete a paid collection account before the seven years from the date of default passes, but that’s false. Credit reporting is 100% voluntary. The law doesn’t require any business to report information to a credit bureau, ever.
In some new credit scoring models, like FICO Score 9, paid collections aren’t given as much weight when calculating credit scores. This can reduce the damage caused by paid collections, but keep in mind that most lenders are still using older scoring models that weigh collection accounts more heavily.
In order to better understand why paid collections are left on consumer credit reports, let’s take a quick look at the process whereby collection accounts end up on a consumer’s credit report in the first place.
The process begins with an uncollectible bill (i.e. a medical bill, a credit card bill, a loan, etc.). Each original creditor or medical office has a policy regarding what they will do with uncollectible debt.
A company might sell the account to a debt collector. It might turn the account over to a collection agency. It could even write the account off and make no further collection attempts, but that’s not the norm.
Most creditors and medical offices will wait until the original bill is at least 120 days past due before turning the account over or selling the account to a collection agency. (And some will wait 180 days.)
Once an account has been turned over or sold to a collection agency, it’s typically not very long before a new collection account appears on the consumer’s credit reports. Some collections might appear on just one or two credit reports. Many others will be added to reports with all three credit bureaus.
Debt collection agencies generally buy debt for pennies on the dollar, and are often very aggressive when it comes to collecting. In some cases, collection agencies even break the law, threatening people or lying to get them to pay. Listen to the story of Jimmy, an experienced debt collector, along with stories about illegal debt collection, in this NPR interview.
Future lenders desire to see a full report of your credit management history before deciding whether or not to offer you a new extension of credit or a new loan. This credit history (and your credit scores) is something used again, if you’re approved, to determine how much to charge you for financing.
The presence of any collection accounts on your credit reports, whether paid or unpaid, is indicative of elevated risk. This is very important information for a lender to know when reviewing your application for credit. The Fair Credit Reporting Act (FCRA) allows for even paid collection accounts to remain on consumer credit reports for seven years from the date of default for this reason.
There’s usually only one way to get a collection account removed from your credit reports early, prior to the date when the credit bureaus are required to purge the account from your reports by law. If a collection account is incorrect or outdated, you can dispute the account with each credit bureau that’s reporting the inaccurate information.
Under the FCRA, when you submit a dispute the credit bureaus will have to investigate your claim. During the investigation, the collection agency will have the opportunity to prove the validity of the account. If the account cannot be proven to be valid, then it must be deleted from your credit reports. It’s worth noting that if you’re disputing an account which the collection agency views to be valid, you can have a very hard time getting it deleted. Sometimes people even have to enlist FCRA and FDCPA attorneys to fight on their behalf in these situations.
Unfortunately, collection accounts, with or without a balance, can have a significantly negative impact upon your FICO Scores as long as they’re on your credit reports. But as time passes, those collection accounts begin to have less and less of a negative impact (assuming there was any negative impact to begin with).
This is good news for the consumer, as the potential negative score impact from a collection account won’t last forever. And, perhaps the best news of all, the most recent versions of the VantageScore credit score and FICO 9 do not consider collections that have a zero balance. That means once they’re paid or settled (and then updated at the credit bureaus) they will no longer be considered.
There’s just one catch: These new scoring models aren’t widely used by lenders yet. So, when you apply for financing, chances are very high that your lender will use an older scoring model that does consider zero balance collections to be negative.
Learn more about your rights when it comes to both debt collection and credit reporting in this helpful guide.
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