If you’re wondering how to remove paid collections from your credit report, you’ve come to the right place.
Your account can be sent to a debt collector if you have missed making payments for several months. This is going to have a negative impact on your credit score in a big way!
Most people pay off their debt in this situation, assuming that it will clear their credit history. However, a collection account will still show on your credit report even after you pay off the balance in full or settle it for a lower amount.
Here is everything you need to know about paid collections and ways to remove them from your credit report.
What Are Paid Collections And Why Is Important To Remove Them?
A paid collection is an account that went into collections because it was unpaid for several months. However, while in collections, it was either paid in full or settled for a lower amount.
One mistake people often make is to presume that a collection will be automatically removed from their credit report once they pay it. Paid debts will be reflected on your credit report if the original debt was reported to the credit reporting companies.
It is important to keep in mind that regardless of whether you pay your debt or not, it will be treated as severely delinquent and adversely affect your credit score. It is also likely for late payment entries associated with the same debt to feature in your credit reports. These entries are not always separate from collections.
Your borrowing options will be limited because lenders will see the debt collection entry when they pull up your credit reports.
Lenders decide whether a person is a good or bad credit risk after looking at the credit score and credit history. A paid collection reflecting on your credit reports will definitely make the interest rates go up.
Regardless, of whether a collection is paid or unpaid, it stays on the credit report for 7 years. Your loan decision and borrowing privileges will be seriously impacted during this time.
This means that you receive the best debt terms or interest rates when you look for an auto loan, mortgage or even a new credit card. You will definitely end up paying more even if a lender approves a loan because of your bad credit.
This makes it critical to remove a paid collection from your credit report. Fortunately, there are several ways that can help you to this effect.
Ways to Remove a Paid Collection
Paying off a collection will not improve your FICO score. It will just stop the incessant calls, mails and letters from the debt collection agency. However, you have a better chance of removing a paid collection than an unpaid one by following these steps.
1. Goodwill Adjustment
The first step you should take is to request a goodwill adjustment from the collection agency. Send them a ‘goodwill letter’ that basically explains your situation.
Feel free to elaborate on your situation and make it as human and personal as possible. For instance, you can write that you are planning to start a family and want to purchase a house, but can’t because of the collection on your credit report.
This might sound like a long shot. However, it works surprisingly well in many situations depending upon the person who reviews your letter and the debt collection agency
In the past, people would set up a ‘pay for delete’ with the collection agency. This meant that a debtor) would pay additional money to the collection agency for the collection account to be removed from the credit report, even after paying the debt in full.
However, Credit Bureaus did not approve of this practice and cracked down on several collection agencies allowing pay for deletes.
Many creditors do not allow this now. However, a goodwill letter does not break any rules and can go a long way. It is also the easiest way to have your paid collection account removed.
2. Demand Validation
If your goodwill letter does not elicit the response you expected, then write to the collection agency and demand that they validate the debt. Section 809 of The Fair Debt Collection Practices Act, directs collection agencies to validate debts they are attempting to collect, if the borrower requests them to do so.
The catch is that you only get 30 days to make this request from the time of initial contact. You can ask the collection agency to remove the paid debt from your collection report if they are unable to validate it.
3. Dispute the Collection
You might not be able to demand a validation if it is past 30 days from the initial contact made by the collection agency. However, you can dispute it with the Credit Bureau. You will need a current copy of your credit report which is freely available from many credit reporting agencies such as TransUnion.
Find the entry you want removed and verify it minutely for every piece of information listed. Note anything that is remotely inaccurate.
This method works because you will write an advanced dispute letter specifically listing what is inaccurate rather than disputing the whole entry. In case, you do not find anything that is incorrect, or can be disputed, then dispute the whole entry as false or not yours.
The Credit Bureaus will launch an investigation; unless they consider your dispute as frivolous. You will have to claim the debt collection account is not yours or is inaccurate in some way to raise a dispute.
The more common disparities are found in balance, account number, account status, dates, payment status, high balance, and credit limit among others.
Make sure you list out all inaccuracies in the advanced credit dispute letter and demand that each piece of information is either corrected, or that the collection is removed. Credit agencies have only 30 days to launch an investigation and verify that the account belongs to you and check all other details.
This can be difficult for the credit agency when you factor in an uninterested debt collection agency, who fails to reply in a timely manner, because your debt is already paid. More often than not, this results in the collection being completely removed.
You can apply for multiple disputes on the same collection entry with different grounds. Do not lose hope and you can simply dispute this again in a couple of months. On top of this, you could hire the services of a credit repair firm to have the paid collection debt removed from your credit report.