What Are Collections And How Do You Get Them
It’s not uncommon anymore for people to be in debt. In fact, even if you are still a student, you can already find yourself in debt with student loans. Being in debt is not actually a bad thing, as debt used the right way can actually help you with your expenses.
Debt becomes bad when you fail to pay back on time. This is because lenders will usually have a late penalty fee on your debt, which means you will be paying more. Aside from the penalty fee, being late for your payment will also have a negative impact on your credit score. This is likely the biggest negative impact that a missed payment will have on you.
But what if you still neglect to pay your debt. What will happen to it? Well, it would become what we would call a collection, which is a significantly delinquent debt that the lender will write off as a loss and sell it to a collection agency. The collection agency will then be the one to contact you to try and collect that debt from you. When your report gets a collection, it means that a lender has already grown tired of trying to collect the debt from you, so they sold it to a collection company to get some of their money back.
Now, there’s really no set rule on how long your debt is delinquent before your lender or creditor turns it over to a collections agency. But many credit card accounts are usually sent to a collections agency after 180 days or 6 months of being delinquent. Your original lender or the collections agency will be the one to report that your account was sent for collections to a credit bureau. Your original lender is not really required to let you know that your account is already sent to collections.
What kind of effect will a “collections” item have on your credit report and how long will it stay there? Is there anything you can do about it? This article will be providing answers to those questions.
What Are The Effects Of Collection On Your Credit Report
If you disregard paying your debt long enough, your creditor or lender will sell your account to a collections agency and they will be the ones to try and collect that debt from you. Aside from spending more money to pay off the debt and enduring the harassing nature of collections agencies, your credit score will also suffer greatly when you get a collection label on your report.
You can be assured that the negative impact will be big and will likely affect your future plans of getting a loan, a new credit card or other forms of financing. But the impact will really depend on the credit bureau since there are really no set rules on how much it would affect your score. Now, there are certain factors that will affect how much of an impact a collection item on your credit score will have. The main factor that will affect the impact of a collection report is how high your credit score is.
If you have a high credit score when the collections agency reported your debt, the drop on your score will be significant. For example, your credit score is around 700 and above, which is good. Then you get a collections report on your credit. Your score will likely drop to 600 or lower. On the other hand, if your score is not that high, the drop in your credit score will not be that great.
Another factor that will have an effect will be the amount of money you owe the creditor. The higher the amount you owe. The greater the impact will be on your credit score. For example, your original debt amounts to $2,000. Its impact on your credit score will be higher compared to having a debt that is $100 or less. So if you owe more money, you can expect that the impact of a collection report on your credit score is big. Lastly, there are some scoring models that will also take into consideration the type of debt, like is it medical debt or non-medical. Some models will also disregard accounts that have already been paid off.
One thing that you can be sure of is that the impact of a collection report on your credit score will not be pretty. And this can have major implications on a lot of your future plans, especially if you are planning to get a loan or any form of financing. But how long will a collection item stay in your credit report?
How Long Will A Collection Stay On Your Credit Report
Many negative items found on your credit report will stay there for at least seven years. For the collection item, it’s actually a bit more complicated than that, as it will stay on your credit report for seven and a half years from when the account first became past due.
When your lender or creditor already considers that your debt is due for collections, they will sell it to a collection agency. Once this happens, the collection account can be reported as a separate account on your credit report. If all information is accurate, this means the collection item will stay on your credit report for seven years plus an additional 180 days from the date that the account was past due.
For example, you have a debt that is overdue on June 10, 2018, but you failed to act on it. After 180 days, which is December 10, 2018, your lender will charge off the debt. Now this means that the collection item will appear on your credit report on December 10, 2018. But the account originally became a delinquent on June 10, 2018. So, the collection account should be removed on your credit report on June 10, 2025, which is seven years and 180 days after the account is first reported as past due.
When your debt is categorized as a medical collection, there is a slight difference in how it is reported. Unlike normal collections, a medical debt will be reported after a 180-day waiting period, according to the National Consumer Assistance Plan. This is to allow insurance payments to be applied to the debt. Credit bureaus are also required to remove any medical collections that have been reported already if they are being paid for or have already been paid by the insurance.
Now, seven and a half years is a long time to wait for your collection account to be removed from your credit report. This means that you will also be postponing many of your future plans that involve getting a loan or some form of financing unless you want to deal with high interest rates. Fortunately, there are ways for you to remove the collection item on your credit report quicker than seven and a half years. In the next section, we’ll talk about the different steps you can take.
What You Can Do to Have The Collection Item Removed On Your Credit Report
Having a negative item on your credit report is never a good thing, especially if you consider that they will be staying there for at least seven years. This is why it’s important that you try to properly manage your finances, especially if you are in debt. Avoid being late on your payment or fail to pay back your loan entirely.
Unfortunately, there will be moments where you will be forced to be late with your payments or miss them entirely, like a medical emergency, you got laid off from work, an emergency repair on your house, and so on. In this case, there’s really nothing you can do about being late for a payment, or worse, getting your account placed under collections. When this happens, it means they will be placed on your credit report and you have to wait seven and a half years before they are removed.
It’s a good thing, though, that there are certain steps you can do to have the negative item removed from your report earlier. These things are not guaranteed, but there’s really nothing wrong in trying them out.
- Request For A Goodwill Deletion – this step will only have a higher chance of success if you have an extremely great credit history and a good relationship with your lender or creditor. If your credit history is spotty, then there is no reason to try this method, as it will definitely not work. You can send a goodwill letter requesting the deletion of your collection item on the credit report. You just need to include in the letter your explanation why you are in this situation, ask for forgiveness and say it won’t happen again. This goodwill letter will actually be more powerful if you set a date on when you promise to pay back your debt or if you have already paid off the debt, or at least a portion of it. This is actually one of the best and one of the most successful methods that many people use to get the collection removed from their report.
- Negotiate For The Removal Of The Collection Item After Paying Off The Debt – Another thing that you can do is to negotiate for the removal of the negative collection item on your credit report in exchange for paying off the debt. Remember that you should be negotiating with your original lender and not with the collections agency, as they will likely only reply that they are unable to do it, which is true to a large extent. Just remember that if your lender agrees, you need to put everything in writing so you will have a legal and valid document to hold on to once you have paid off your debt on the agreed upon date and time.
- Dispute The Collection – This method will only work if there is inaccurate information or detail on the collection item that is placed on your credit report. Once you see any inaccuracies, regardless of how small it is, you can dispute it to credit bureaus and they will remove the collection account once your dispute has been proven valid. If the collection agency can’t update the inaccuracy of the information or detail, then they are required to remove the collection account on your credit report. Likewise, some collection agency will try to keep the collection item on your credit report past the seven and a half year limit or change the date of your account became past due to keeping it there longer. If this happens, you can dispute it to credit bureaus. You will just need to provide proof of the date when your account became first past due so the information can be updated or the negative item removed.
- Hire A Credit Repair Company – If you don’t have the time and energy to try and fix the removal of the collection account on your credit report, you can hire a credit repair company to do it for you. These companies will be a big help in fixing your credit report. Just remember to be wary of the scam credit repair companies that promise outrageous things.
These are just some of the things that you can do to remove the collection account earlier than seven and a half years on your credit report. As mentioned above, there’s really no guarantee that you will succeed, as there will certainly be many factors at play.
But there’s no harm in giving it a try, as one these methods may actually work in getting your collection account removed.
It is important that you manage your finances properly, especially if you are in debt so you can pay back your loan on time to avoid any problems or issues with your creditors and with your credit score. This is because being delinquent on your debt will not only result in late charge fees, but it will also have a negative impact on your credit score.
Plus, most negative items on a credit report will stay there for at least seven years. This will have major repercussions on your present and future plans, especially if you are looking to get approved for a loan. If you find yourself in this kind of situation where a negative item like a collection account is placed on your credit report, no need to worry, as there are actually some steps you can take to try and fix this problem.
You just have to remember that these steps are not guaranteed to succeed, but they do work, as some people who have already succeeded in getting negative items removed from their credit reports.