Can Collection Accounts Be Removed From a Credit Report?

A collection account on a credit report can hinder an individual’s financial standing and access to credit. These accounts emerge when an original creditor, after unsuccessful attempts to collect a debt, sells or assigns it to a third-party collection agency. The presence of a collection account signals a past-due obligation, making it challenging for consumers to secure new loans, obtain favorable interest rates, or even rent property. Understanding their impact and removal methods is important for credit health.

Understanding Collection Accounts

A collection account represents a debt that has become delinquent and has been sold or assigned to a collection agency. When a payment is missed, an account progresses through stages of delinquency, such as 30, 60, and 90 days past due. The original creditor may then charge off the debt, which can be transferred to a collection agency. At this point, it appears as a collection account on a credit report.

A collection account on a credit report can lower an individual’s credit score. Credit scoring models, such as FICO and VantageScore, weigh payment history, and a collection account indicates a failure to meet financial obligations. This negative mark can remain on credit reports for approximately seven years from the date of original delinquency, regardless of whether the debt is subsequently paid. Even a paid collection account still reflects a past delinquency, though its impact may lessen over time.

Strategies for Removing Collection Accounts

Disputing Inaccurate Information

Identifying and disputing inaccuracies on a credit report is a method for removing collection accounts. Inaccuracies can include incorrect balances, duplicate accounts, accounts that do not belong to the consumer, or accounts past their legal reporting period. Individuals should obtain their credit reports from Experian, Equifax, and TransUnion. Reviewing these reports allows for the identification of collection accounts with errors or that are not legitimate.

Once an inaccuracy is identified, the formal dispute process begins with the credit bureaus and the collection agency. Disputes can be initiated online through the credit bureau’s website or by mail. When mailing, send disputes via certified mail with a return receipt requested, providing proof of submission.

The dispute should clearly state the inaccurate information and include supporting documentation, such as account statements or proof of payment. The Fair Credit Reporting Act (FCRA) requires credit bureaus to investigate disputes within 30 days and then notify the consumer of the outcome.

Negotiating a Pay-for-Delete

A “pay-for-delete” agreement involves negotiating with a collection agency to have a collection account removed from a credit report in exchange for payment of a portion or the full amount of the debt. Before making any payment, research the original debt and the collection agency to confirm its legitimacy and ownership. Consumers should get the terms of a pay-for-delete agreement in writing from the collection agency. This written agreement should specify that the collection account will be removed from all three major credit bureaus’ reports upon receipt of payment.

After securing a written pay-for-delete agreement, the agreed-upon payment can be made. Use a traceable payment method, such as a cashier’s check or money order, rather than providing direct access to bank accounts. Following payment, monitor credit reports to ensure the collection account is removed as agreed. If the collection account is not removed within a reasonable timeframe, the written agreement serves as leverage to dispute the item with the credit bureaus, citing the agency’s failure to uphold their agreement.

Waiting for the Reporting Period to Expire

Collection accounts, like most negative information, have a limited lifespan on a credit report. The Fair Credit Reporting Act (FCRA) mandates that most negative information, including collection accounts, can remain on a credit report for a maximum of seven years. This seven-year period begins from the date of the original delinquency of the account that went into collections. This means some collection accounts will eventually fall off a credit report naturally.

To estimate when a collection account will naturally expire, identify the original delinquency date of the account. This date marks the beginning of the seven-year reporting period. Paying a collection account does not restart this seven-year clock; the original delinquency date remains the reference point for its removal. Regularly monitor credit reports, especially as the seven-year mark approaches, to ensure expired collection accounts are promptly removed by the credit bureaus.

After a Collection Account is Removed

Once a collection account is removed from a credit report, whether through dispute, negotiation, or expiration, continuous monitoring of credit reports is important. Regularly checking reports from all three credit bureaus helps ensure the account remains removed and allows for early detection of any new or re-aged negative entries.

Beyond monitoring, adopting positive credit habits is important for rebuilding and maintaining a strong credit history. Consistently making all payments on time is a significant factor in credit scoring. Keeping credit utilization low, below 30% of available credit, also contributes positively to credit scores. Responsibly managing a mix of credit types, such as installment loans and revolving credit, demonstrates a borrower’s ability to handle various financial obligations.

Citations

https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/