If you have collection accounts on your credit reports, you no doubt just want them to go away. While we have some tips for how to remove collections from your credit report, it’s important to keep in mind that, by federal law, they can be reported for seven and a half years from the date you first fell behind with the original creditor. And that probably feels like forever!
The idea that you can get the collection agency to remove the account if you pay it could be appealing, but it’s trickier than you may think for reasons we’ll explain in a moment.
The first step to dealing with this situation is to get your credit reports and your credit scores so you can understand exactly what is being reported and how it affects your scores. You can get a free credit report each year from each of the major credit reporting agencies – Equifax, Experian and TransUnion – and you can get two truly free credit scores (from Experian and VantageScore 3.0), updated every 14 days, at Credit.com.
How to Pay Off Collections
Consumers sometimes ask collection agencies to remove the collection account from their credit reports in exchange for payment. Sometimes collection agencies make this kind of offer, but usually it is the debtor who tries to negotiate a “pay for removal” deal.
Collection agencies will often respond to this request by stating that they are unable to remove the negative information. And to a large extent, that is true. The credit reporting agencies with whom they have contracts prohibit this activity. (Otherwise, collection accounts would be removed all the time and credit reports would not accurately reflect the consumer’s creditworthiness.)
At the same time, collection agencies cannot report information that is inaccurate or incomplete. So if you found yourself with a collection account on your credit report because you had a legitimate dispute with a creditor or service provider, it is perfectly reasonable to request that collection account be removed if you pay the bill.
Unfortunately, simply paying a collection account (without getting it removed) often won’t improve your credit scores. With few exceptions, as long as a collection account is listed on your credit reports – paid or unpaid – it will have a negative impact on your credit scores.
While it’s discouraging to know that paying collection accounts won’t help your credit scores, keep in mind that as this information gets older, it will have less and less of an impact. That’s particularly true if you are building new, positive credit references.
How Long Do Late Payments Stay on Your Credit Reports?
Like collection accounts, late payments can remain on your credit reports for up to seven years and also have a negative impact on your scores. But, also like collection accounts, they too have less impact as they get older. It’s good to keep in mind that not all late payments are equal. A payment that is 30 or 60 days late isn’t going to have as serious an effect on your credit score as a payment that’s 90 days past due.
In addition, if any of the information reported about a collection account (or late payments) to the credit reporting agencies is inaccurate or incomplete, you have the right to dispute that account with the credit reporting agencies. They must verify the information with the source. If the source doesn’t confirm the information within thirty days, the credit reporting agency must remove it. Some agencies will not bother to verify older paid collection accounts.
VantageScore 3.0 & FICO 9: Hope for Consumers?
The newer FICO scoring models ignore collection accounts where the original balance is less than $100. That should eliminate some “nuisance” collection accounts such as small parking tickets or unpaid library fines from hurting credit scores. Along those lines, the new VantageScore 3.0 credit score ignores all paid collections, as well as any collections, paid or unpaid, under $250. But you rarely know what credit scoring model is being used when you apply for a loan, credit card, mortgage or auto loan, so you can’t necessarily bank on
Even if paying one of these balances off won’t help your scores, it may still be a good idea to resolve it, especially if you are at risk of being sued for the debt. That, in turn, can create even more problems for your credit and your finances.