Content of the material
- What Is a Charge-Off?
- When a Collection Agency Steps in
- 2. Determine the Account’s Legitimacy
- How Long Do Collection Accounts Stay On Your Report?
- Will making payments change the timeline or keep a collection from falling off your credit reports?
- 4. Negotiate a Pay-for-Delete Agreement
- How to Negotiate a Pay-for-Delete Agreement
- How long can a debt collector pursue an old debt?
- How Do Collections Affect Credit?
- 2. Dispute the Collection If You Found An Error
- ITEMS ON THE COLLECTION ENTRY TO CHECK FOR INACCURACIES:
- Frequently Asked Questions
- What is a collection on your credit reports?
- Can you remove a collection from your credit reports without paying?
- Removing Closed Accounts From Your Credit Report
- Goodwill Letter
- Pay for Delete
- Can I Dispute Accurate Information From My Credit Report?
- 1. Send a request for “goodwill deletion”
- 2. Work with a credit counseling agency
- Are pay-for-delete negotiations worth it?
- Avoid the following strategies
- Closing a line of credit that is already behind on payments
- Filing for bankruptcy
- COVID-19 and credit repair: What you should know
What Is a Charge-Off?
When a creditor gives you a loan or line of credit, it assumes you're going to pay back what you borrow. If you fall behind or stop making payments altogether, your account can become delinquent. Once an account has been delinquent for an extended period of time—typically meaning it's 120 to 180 days late—the creditor may charge it off.
A charge-off means your account is written off as a loss. At this point, the account may be assigned or sold to a debt collection agency. The debt collector can then take action against you to try to get you to pay what’s owed. That can include calling you to ask for a payment, sending written requests for payment, or even suing you in civil court to try and obtain a judgment.
When a Collection Agency Steps in
Charge-offs don't end your obligation to repay the debt.
Even if your original creditor no longer owns the account, you’ll still owe the debt to the collection agency that acquired it. Charge-offs and other negative account history, such as late or missed payments, can stay on your credit reports for up to seven years.
Note Depending on which credit bureaus a debt collector or creditor reports to, a charge-off could show up on just one or all three of your credit reports.
2. Determine the Account’s Legitimacy
While reviewing the collection listed on your account, make sure the debt belongs to you. If it doesn’t belong to you or you made on-time payments to pay it off, dispute the error to remove the collection from your report.
How Long Do Collection Accounts Stay On Your Report?
Paid or unpaid collection accounts can legally stay on your credit reports for up to seven years after the original account first became delinquent. Once the collection account reaches the seven-year mark, the credit reporting companies should automatically delete it from your credit reports.
If your collection account doesn’t fall off of your credit report after seven years, you can file a dispute with each credit bureau that lists it on your report.
Will making payments change the timeline or keep a collection from falling off your credit reports?
In general, making payments on (or fully paying off) a debt in collection should not affect the time it stays on your credit reports.
As the Consumer Financial Protection Bureau notes, however, in some states a partial payment can restart the time period for how long the negative information appears on your credit reports.
A partial payment can also restart the statute of limitations, or period of legal liability, for the debt. If the debt is still within the statute of limitations, a debt collection agency may choose to sue you for your unpaid debt. Each state has its own statute of limitations that determines how much time a debt collection agency has to take legal action, but for many states it ranges from three to six years.
If you do pay off an account in collections, the collection agency may be able to contact the credit bureaus and remove the collection account from your credit reports before the seven-year mark.
You may have to do some extra pushing to make this happen.
Before paying off an account in collection, get on the phone with an agent from the debt collection agency and confirm that the agency will update your credit reports. If the agent can’t or won’t agree to remove the paid account from your credit reports, ask if the account can be updated as “paid as agreed upon” once your payment/s are received.
This may prove more difficult if you choose to settle your debt rather than pay off the full amount originally agreed upon. In other words, there’s a chance the collection agency may refuse to remove it because the debt was not fully paid. So when negotiating with a debt collector, it’s important to get everything in writing before making a payment.
4. Negotiate a Pay-for-Delete Agreement
When your original creditor can’t collect your past-due balance, it’ll sell your debt to a debt collection agency which means you now owe the money to the agency.
But when the agency buys your debt, it doesn’t pay the full amount. It may pay only a fraction of what you owed on your original debt.
If the collection agency can get you to pay off the debt, it makes a profit. As a result, you could leverage a payment in your negotiations.
How to Negotiate a Pay-for-Delete Agreement
You offer to pay part of your balance due in exchange for getting all negative information related to the debt off your credit report.
For this to work, you have to get this agreement in writing. An agreement over the phone won’t hold up. You could do your part and pay the agreed-upon amount only to learn the agent you spoke with didn’t make a record of the deal.
Now, if you owe $30,000 on an old credit card charge-off, you’d have a hard time coming up with a lump sum so large. Even 30 percent would still be $9,000. But this pay-for-delete strategy can help when you can afford to make a payment.
Late payments can be reported separately even though it’s associated with the same debt. Though, if you negotiate with your creditors to get a collection account removed, be sure all the negative data goes away.
How long can a debt collector pursue an old debt?
Each state has a statute of limitations about how long a debt collector can pursue old debt. For most states, this ranges between four and six years. These statutes govern the amount of time that a debt collector can sue you, but there is no limit to how long a collector has to try and collect on a debt. If you are being contacted about a debt that you believe is not yours or is outside the statute of limitations, do not claim the debt; instead, ask the company to validate that the debt is yours.
How Do Collections Affect Credit?
Creditors view collection accounts as red flags, but likely view paid collections with less disfavor than unpaid ones. The most recent version of the FICO® Score☉ (FICO 9) and versions 3.0 and 4.0 of the VantageScore® credit scoring systems agree: Unpaid collections can hurt your credit score, but paid ones do not.
Some lenders use older versions of both credit scoring systems that still count paid collection accounts, however, and there’s no way to know ahead of time which credit scoring method(s) a lender will use when deciding to approve a loan application. So while paid collections on your credit report may still hurt your chances of approval, paying off the account gives an opportunity to do the least possible damage.
2. Dispute the Collection If You Found An Error
If the goodwill letter falls flat and the debt collection remains on your credit report, it’s time for a more advanced method.
For this, you will need a current copy of your most recent credit report. TransUnion, Experian, and Equifax provide you with a free credit report once a year. You can also apply for a free weekly credit report on AnnualCreditReport.com.
Once you have your credit reports, find any negative items you’d like removed and make note of them.
Confirm all the details and if you see anything inaccurate, report the inaccurate information to the major credit reporting agencies.
The Fair Credit Reporting Act (FCRA) requires credit reporting agencies to show only accurate information about your credit history.
If you can find inaccurate information, the credit bureau will have to fix the information. Though, if it can’t fix the errors, the bureau should remove the collections from your credit report.
This method can work because, rather than simply disputing the entire entry, you are going to write an advanced dispute letter that lists especially what is inaccurate.
Using this letter, you will insist that each piece of information is corrected or that the collection be removed.
This makes it more difficult for the credit agencies to verify the collection and hopefully results in them simply removing the collection altogether.
ITEMS ON THE COLLECTION ENTRY TO CHECK FOR INACCURACIES:
- Account number
- Date opened
- Date closed
- Account status (e.g., Closed)
- Payment status (e.g., Collection)
- Payment history
- Delinquency date
- Credit limit
- High balance
- Anything else that appears to be inaccurate
Frequently Asked Questions
What is a collection on your credit reports?
A collection account is created when a debt you’ve failed to repay is transferred to a collection agency. You’re still on the hook for paying the debt once it’s sold, but you typically have to pay the collection agency instead of the original creditor.
Debts aren’t usually turned over to collections the moment you make a late payment, but the time between your first missed payment and the transfer can vary. It may take several months, it may happen immediately, or it may never happen at all, depending on the creditor.
Once the debt has been turned over to collections, it’s generally reported to the credit bureaus. It’ll then appear on your credit reports and, as a result, damage your credit scores until it’s removed.
Can you remove a collection from your credit reports without paying?
Technically, the answer is yes. It’s unlikely, though.
There are a few ways you could try. They’re essentially the same steps you’d take to request a paid account be removed:
- File a dispute with the credit bureau and/or ask the collection agency to validate the debt if you believe the collection account is inaccurate.
- If the account is legitimate but you’ve paid some of it and/or have exhibited responsible behavior otherwise, send the collection agency a goodwill letter requesting the unpaid collection be removed from your reports.
If the above routes fail, you’re probably out of luck. And remember that even if a collection account is removed from your credit reports, you’re still liable for the debt.
Removing Closed Accounts From Your Credit Report
In some cases, a closed account can be harmful to your credit score, especially if the account was closed with a delinquency, like a late payment or, worse, a charge-off.
Payment history is 35% of your credit score, and any late payments can cause your credit score to drop, even if the payments were late after the account was closed.
Removing the account from your credit score could potentially lead to a credit score increase.
Removing a closed account from your credit report isn't always easy, and is only possible in certain situations.
If the account on your credit report is actually open but incorrectly reported as closed, you can use the credit report dispute process to have it listed as an open account. Providing proof of your account status will help your position.
Having a credit account reported as closed (when it’s actually open) could be hurting your credit score, especially if the credit card has a balance. You can dispute any other inaccurate information regarding the closed account, like payments that were reported as late that were actually paid on time.
You can use a goodwill letter to request that a creditor remove a closed, paid account from your credit report.
Creditors don't have to give in to a goodwill request, no matter how nicely you ask, but you may get lucky and find one who's sympathetic to your request.
Pay for Delete
For accounts with balances, the “pay-for-delete” strategy can help you remove a closed account from your credit report. The pay-for-delete letter offers full payment of the outstanding amount in exchange for removing the account from your credit report.
Again, creditors don't have to comply. Occasionally, some creditors and debt collectors will agree to the arrangement with payment as an incentive to remove the account from your credit report.
You can send your goodwill or pay-for-delete letter directly to the creditor by mail. In some cases, you can try contacting the creditor by phone first to make your request.
Can I Dispute Accurate Information From My Credit Report?
Accurate items in your record can’t be disputed or removed before the term set by law (seven years for most negative items). For example, if you missed payments on your credit card or defaulted on a student loan, your dispute request will be denied.
If you do have valid negative items on record, here are some things that might help:
1. Send a request for “goodwill deletion”
Writing a goodwill letter can be a viable option for people who are otherwise in good standing with creditors. If you’ve taken steps to pay down your overall debt and have been paying your monthly bills on time, you might be able to convince your creditor to “forgive” the late payment.
While there’s no guarantee that the creditor will delete the derogatory information, this strategy does get results for some. Goodwill letters are most successful for one-off problems, such as a single missed payment. However, they are not effective for debtors with a history of late payments, defaults or collections.
When writing the letter:
- Take responsibility for the issue that lead to the derogatory mark
- Explain why you didn’t pay the account
- If you can, point out good payment history before the incident
2. Work with a credit counseling agency
Several non-profit credit counseling organizations, like the National Foundation for Credit Counseling (NFCC), can help dispute inaccurate information on your record.
The NFCC can provide financial counseling, help review your credit history, help you create a budget and even a debt management plan free of charge. It also offers counseling for homeownership, bankruptcy and foreclosure prevention.
As always, be wary of companies that overpromise, make claims that are “too good to be true” and ask for payment before rendering services.
When looking for a legitimate credit counselor, the FTC advises consumers to check if they have any complaints with:
- Your state’s Attorney General
- Local consumer protection agencies
- The United States Trustee program
Are pay-for-delete negotiations worth it?
Pay-for-delete is a negotiation strategy in which you offer to pay your debt (partly or in full) in exchange for the collection agency to remove the derogatory item from your file. Since collection agencies want to get back as much money as possible, paying the debt may be enough incentive for them to remove the negative entry. However, pay-for-delete is not a dependable solution, and it falls in a legal gray area.
Collection agencies are required by law to report accurate information, just like reporting companies and creditors. While you can certainly request it, a collection agency has the right to refuse your request. They may agree to label the collection as paid — which is what happened — but they won’t delete the collection entry itself.
Also, note that pay-for-delete agreements might not improve your score. The most recent credit score models (FICO 9 and VantageScore 4.0) don’t factor in paid collection accounts when calculating your score, which means that fully paying the account will have the same effect as negotiating a pay-for-delete. However, bear in mind that unpaid collections will still impact your score.
Avoid the following strategies
While the following methods can be tempting options when trying to repair your credit, they can often cause more harm than good. Stay away from the following:
Closing a line of credit that is already behind on payments
Closing a card that’s behind on payments doesn’t eliminate the debt. In fact, it can lower your credit score by increasing your debt-to-credit ratio, also known as credit utilization percentage. This ratio represents the amount of credit you’re currently using divided by the total amount of credit you have available.
For example, if you have two credit cards, each with a maximum credit limit of $5,000, your total available credit is $10,000. Owing $3,000 on one card and $2,000 on the other would mean you’re using 50% of your total available credit.
To improve your credit score, experts recommend keeping your credit utilization under 30%. Following the example mentioned above, that would mean using only $3,000 or less per cycle.
If you close one of your credit cards instead of paying it, you’ll have less available credit. Creditors evaluate your debt-to-credit ratio when you apply for new cards or loans. If your ratio is over that threshold, they might classify you as a high-risk borrower, offer you less attractive interest rates or even deny you credit altogether.
Filing for bankruptcy
Bankruptcy should be considered a last resort — it can seriously damage your score and hinder your ability to get loans, mortgages or credit for years after your debts are discharged.
There are two types of bankruptcies available for individuals: Chapter 7 and Chapter 13. A third type, Chapter 11, is meant for businesses.
Under a Chapter 7 bankruptcy filing, a court mandates the liquidation of your assets in order to pay your outstanding debt. A trustee is then appointed to review your finances and sell off any additional asset that isn’t protected under bankruptcy exemptions.
With a Chapter 13 bankruptcy, on the other hand, you’re allowed to keep your assets as long as you complete a court-mandated repayment plan meant to pay your highest priority, secured debt.
Impact of bankruptcy on your credit report
Filing for bankruptcy can lower your score by around 200 points or more. It will also negatively impact your chances of getting new lines of credit or loans for several years until your credit history substantially improves.
If you file for Chapter 7 bankruptcy, the derogatory mark will remain on record for up to 10 years; for Chapter 13, it’s seven years.
COVID-19 and credit repair: What you should know
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided consumers with some debt and credit relief measures.
While original creditors and debt collectors can still report negative items, lenders have put some measures in place to help consumers avoid delays in their payments. These include:
- Payment plans
- Mortgage forbearance
- Deferred payments
- Loan modifications
- Reduced interest rates
- Loan extensions
- Waiving late fees
You must apply for one of these directly with your lender and, if accepted, your accounts won’t reflect any new negative information.
Additionally, as we said above, at least until April 20, 2022, Experian, Equifax and TransUnion will offer free weekly reports through AnnualCreditReport.com, which can help you monitor and protect your personal finances throughout the pandemic.
How to remove items from your credit report FAQ
How long does bankruptcy stay on your credit report?Chapter 13 and Chapter 7 bankruptcies stay on file for a period of seven and 10 years, respectively. How long do hard inquiries stay on your credit report?Hard inquiries stay on your file for two years. However, they only impact your score for the first 12 months. They have no impact on your score after that point. Additionally, not all hard inquiries impact credit scores. For example, if you’re comparing loan rates during a short period of time (around 14 days), scoring models will round up all hard inquiries under a single one. How long do late payments stay on your credit report?Late payments are reflected in your file for around seven years from the original delinquency date — the date of the missed payment.How to remove collections from your credit reportIf the collection is an error, you have the right to dispute it. Bureaus are required to remove it if you can prove the collection account doesn’t belong to you. However, if the collection does belong to you, your options are limited. You may send a goodwill letter in which you ask the debt collection agency to remove the item now that you’ve paid it off, but there’s no guarantee your collection will be removed. Alternatively, you can simply wait for the collection to drop off from your credit history, which should happen seven years from the date of the original missed payment. How to remove negative items from credit report yourselfThe dispute process involves sending a letter to the credit bureau that generated the report with the error. The letter should explain why the information is inaccurate and include supporting evidence. You can also file a claim online. Each credit reporting company has an online dispute section that even lets you check your request’s status. You can also dispute the information directly with the company which provided the inaccurate information to the credit bureau. Both the bureaus and lenders generally have up to 35 days to investigate and respond to a claim.