Collections are the next step after your debts have been charged-off by your creditors. They appear on your credit report as a separate negative entry, and like charge-offs they will be reported for up to 7 years after the date of the delinquency.
Unfortunately, debt collectors don’t always stop trying to collect even after the reporting limit on the debt has expired. They depend on uninformed consumers to give them a “second chance” with these older collections accounts. Your only defense is to know the truth before you decide whether or not to pay.
Recent Collections Hurt Your Credit Most
Most accounts end up in collections after 4 to 6 months without payment. During this time, your creditors may have stopped contacting you about the debt. With many people, renewed collection activity comes as a nasty surprise after their debts are turned over to third-party collection agencies that use more aggressive tactics.
When collections first show up on your credit report, you can expect your credit scores to drop anywhere from 50 to 100 points depending on how high your credit was to start. In general, the better your credit, the worse the hit will be.
At this point, paying off the collections may be the best course of action under two conditions:
- You actually owe the debt (NEVER pay a debt you don’t owe)
- You can get an agreement in writing that the debt collector will REMOVE the collections from your report.
Most collection agencies will offer to “update” the account to Paid in Full. While this may help you in some situations where your credit is good enough to qualify for the loan you need otherwise, it will not help your credit scores very much. Even a paid collection account will lower your credit scores, and it will remain on your credit file for the same 7 year period.
If your company has an internal collections department, you may have greater success in getting the collections removed from your account. Most companies just want to be paid, and if you have the funds available to cover the debt and can get the removal agreement in writing, this option will likely be quickest.
When Paying Collections Makes Things Worse
Debt collection agencies don’t just go after newly delinquent accounts. More frequently, third party collectors go after very old debts, which they purchase for as little as a few pennies on the dollar. When you are hit with these kinds of collections accounts, the problem with your credit scores can quickly spiral out of control.
It’s not uncommon for third party collection agencies to buy and sell the same debts multiple times, which means you could have multiple collections accounts listed for the same debt, each one lowering your credit score even further.
Finding out which of these companies actually owns your debt at any given time can be tricky, and even then, you’ll still have to negotiate with the other agencies that have posted negative information to your credit file.
There are two distinct dates that you need to be aware of when it comes to collections accounts: the reporting limit and the statute of limitations. Although they sound similar, these two terms are very different.
The reporting limit on your debts is set by the Fair Credit Reporting Act (FCRA) and is equal to seven years after the date of last activity, or DLA. For collections accounts, this is typically seven years after the date that the account was charged off.
Because most accounts are charged off after six months of missed payments, you can expect to see the collections fall off of your report 7 years and 6 months after your last payment.
The statute of limitations on a debt varies from state to state. It can be as few as 3 years or as many as 6 (or longer for some types of debt).
When the statute of limitations has passed on a debt, it is referred to as “time-barred” and while a debt collector can continue to contact you about it unless you tell them to stop, they cannot legally sue you to obtain a judgment once the statute of limitations has passed. The debt may still be listed in your credit file after the statute of limitations has passed, if the reporting limit has not.
Some underhanded debt collectors attempt to coerce you into paying by listing a more recent date on the collections account. This is known as re-aging and is illegal under the FDCPA and the Fair Credit Reporting Act (FCRA).
In these instances, paying collections can actually make the problem worse because:
- Old collections may be illegally re-aged to make them look new once you agree to pay.
- If you try to set up a payment plan, you could open yourself up to a lawsuit by re-starting the time creditors have to legally collect
- You may not be paying the creditor who currently owns the debt, so the collections will remain on your account.
- ALL of these scenarios will just LOWER your credit scores.
Getting Rid of Collections on Your Credit Report
The only way to get rid of legitimate collections is to wait for them to fall off of your credit report naturally, or to negotiate for removal either directly with the creditors or by using a credit repair specialist.
However, it’s often the case that there are errors on collections accounts. Because they get passed back and forth so often, it is not uncommon for records to be mixed up. Your collections accounts may not have the right amount, the right date, or any number of mistakes that creditors don’t bother to fix.
Debt collection agencies don’t care about what they do to your credit. They only care about what it takes to get you to pay up, and they are hoping that you don’t realize that the law is on your side!
It is your legal right to dispute any mistakes on your credit report and that includes collections accounts with false information. But because the debt collection agencies can make it impossible to determine who owns your accounts, you will most often have to file the dispute multiple times, keeping track of each one.
This is where having access to a credit repair professional can really make a difference. They help most people to remove these collections by disputing the errors for you, which means you don’t have to directly contact any of the debt collection companies yourself.
It also means that they handle all of the tracking necessary to ensure that these companies are complying with the FCRA and that your credit file does not contain errors like account re-aging and multiple listings for the same collections.
If you aren’t sure where to start when it comes with disputing collections on your credit report, talk to one of our credit repair experts to get your questions answered. We offer a no-obligation consultation to explain just how we remove collections and what we can do to help in your specific situation. Get in touch with us today and stop going in circles with creditors over your collections accounts.
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If you’re sick of going through life with bad credit, call 800-220-0084 for a free credit consultation or fill out the form below and a representative will call you.