Negotiating Collection Accounts
Many people who have reviewed their credit report have found that they have a collection account listed. These accounts hurt your credit score and should be worked to have them cleared up. Since most Americans don't know how to clear them up, it seemed wise to put some information out on your options.
Here are some tips for working out these accounts.
1. Start by looking at the age of the account. Most states have a law that forbids collection agencies from trying to collect on an account after a certain period of time. If the account is really old, you may be opening up a problem. Collection agencies will try to collect the debt no matter how old it is and if the account is really old, then you might not want to do anything on the account. Check with the Attorney General's office in your state to find out what that time frame might be. Technically, paying off the debt is always the first option but sometimes it makes sense to review that before you start any negotiation.
2. If the account is less than 2 years old it is best to try and pay the balance off in full. Contact the collection agency and try to negotiate them removing the listing if you pay your account in full. The collection agencies do not have to do that, but sometimes they might be willing to get the account settled. If the collection agency agrees to remove the information from your credit report, get that in writing prior to making any payment. Even if the collection agency removes the listing from the credit bureaus, the original lender will still have the listing reported to the credit bureau. That is why collection accounts are so damaging. Each collection account is actually being reported twice on your credit history, one for the original lender and one for the collection agency. But no matter what is negotiated, a paid account will eventually look better than an unpaid or settled for less than full notation. A collection account weighs the same on your credit report whether it is noted as paid or unpaid to the credit score. It is only because a paid account looks better on paper than an unpaid account. Once the account is paid be sure to do credit repair on those listed in your history to remove any incorrect information.
3. Accounts that are between 2-5 years old are the most difficult accounts to work on. By not doing anything, they will continue to damage your credit score until they reach about the five year mark. But if you try to work on negotiating them you may find yourself being harassed by the collection agency in trying to get that paid before their time runs out. The closer collection agencies get to the "due" date, the more aggressive they get. They still have to follow the rules of the Fair Debt Collection Act but their tone and manner becomes more aggressive. Generally, by trying to negotiate them to get removed by making payment in full is best. Then if they refuse to remove the listing, negotiate a reduced settlement amount. If they just don't seem to want to negotiate, then you need to decide how much you need to pay the account. If you are not planning on purchasing a home or new car right away, then you may want to let it sit. As the account gets older, the closer the account gets to the date the collection agency must stop pursuing it. The closer to that date they get, the more likely they are to want to negotiate a settlement.
4. Accounts that are five years or older it may just be best to leave them alone. They will be removed from your credit report after seven years. The accounts are doing some damage to your credit score, but after this length of time you will find the damage is minimal and when the account falls off your credit report you will see a positive change on your credit report.
5. If you are planning on buying a new home, you may find the prospective lender wanting you to clear up all of the unpaid collection accounts before they will lend you money for the home. Then you have to decide if resolving those accounts is better than doing without the home that you are looking at. Most Americans want to settle the open collection accounts but feel embarrassed when they try to settle the accounts. Remember that the collection agencies have just been hired to try and collect the outstanding debt. Be direct and confident in talking about a settlement. You are making the honest and forward contact to the collection agency to try and get it settled. When you have a goal and know what you want out of the contact, you are in the drivers seat and should take control of the contact.
Once you have the accounts paid make sure that they are reporting as you have agreed they would. If they are not reporting correctly, then dispute them until they do. Once the collection account is marked as paid it will continue to hurt your credit score for about 2 years. Then if you have been paying your accounts on time and in full, then you will notice an increase in your credit score as those collections accounts will not be as damaging.
Many people who have reviewed their credit report have found that they have a collection account listed. These accounts hurt your credit score and should be worked to have them cleared up. Since most Americans don't know how to clear them up, it seemed wise to put some information out on your options.
Here are some tips for working out these accounts.
1. Start by looking at the age of the account. Most states have a law that forbids collection agencies from trying to collect on an account after a certain period of time. If the account is really old, you may be opening up a problem. Collection agencies will try to collect the debt no matter how old it is and if the account is really old, then you might not want to do anything on the account. Check with the Attorney General's office in your state to find out what that time frame might be. Technically, paying off the debt is always the first option but sometimes it makes sense to review that before you start any negotiation.
2. If the account is less than 2 years old it is best to try and pay the balance off in full. Contact the collection agency and try to negotiate them removing the listing if you pay your account in full. The collection agencies do not have to do that, but sometimes they might be willing to get the account settled. If the collection agency agrees to remove the information from your credit report, get that in writing prior to making any payment. Even if the collection agency removes the listing from the credit bureaus, the original lender will still have the listing reported to the credit bureau. That is why collection accounts are so damaging. Each collection account is actually being reported twice on your credit history, one for the original lender and one for the collection agency. But no matter what is negotiated, a paid account will eventually look better than an unpaid or settled for less than full notation. A collection account weighs the same on your credit report whether it is noted as paid or unpaid to the credit score. It is only because a paid account looks better on paper than an unpaid account. Once the account is paid be sure to do credit repair on those listed in your history to remove any incorrect information.
3. Accounts that are between 2-5 years old are the most difficult accounts to work on. By not doing anything, they will continue to damage your credit score until they reach about the five year mark. But if you try to work on negotiating them you may find yourself being harassed by the collection agency in trying to get that paid before their time runs out. The closer collection agencies get to the "due" date, the more aggressive they get. They still have to follow the rules of the Fair Debt Collection Act but their tone and manner becomes more aggressive. Generally, by trying to negotiate them to get removed by making payment in full is best. Then if they refuse to remove the listing, negotiate a reduced settlement amount. If they just don't seem to want to negotiate, then you need to decide how much you need to pay the account. If you are not planning on purchasing a home or new car right away, then you may want to let it sit. As the account gets older, the closer the account gets to the date the collection agency must stop pursuing it. The closer to that date they get, the more likely they are to want to negotiate a settlement.
4. Accounts that are five years or older it may just be best to leave them alone. They will be removed from your credit report after seven years. The accounts are doing some damage to your credit score, but after this length of time you will find the damage is minimal and when the account falls off your credit report you will see a positive change on your credit report.
5. If you are planning on buying a new home, you may find the prospective lender wanting you to clear up all of the unpaid collection accounts before they will lend you money for the home. Then you have to decide if resolving those accounts is better than doing without the home that you are looking at. Most Americans want to settle the open collection accounts but feel embarrassed when they try to settle the accounts. Remember that the collection agencies have just been hired to try and collect the outstanding debt. Be direct and confident in talking about a settlement. You are making the honest and forward contact to the collection agency to try and get it settled. When you have a goal and know what you want out of the contact, you are in the drivers seat and should take control of the contact.
Once you have the accounts paid make sure that they are reporting as you have agreed they would. If they are not reporting correctly, then dispute them until they do. Once the collection account is marked as paid it will continue to hurt your credit score for about 2 years. Then if you have been paying your accounts on time and in full, then you will notice an increase in your credit score as those collections accounts will not be as damaging.