Deep Dive: Collections

Ugh. Collections. They are not fun, because unlike most other negative items on your credit report, collections agencies contact you. They remind you about the debts you’d like to forget about, and generally make you feel bad. But there’s a silver lining here: Because collections agencies are eager to work with you, it’s fairly easy to get collections off your credit report. This is one of the faster ways to improve your credit score, but you have to know how to deal with the agencies the right way:

Make sure you really owe the debt.

This may seem obvious, but there are a lot of factors that go into whether or not you truly owe a debt. Ask the collections agency who they are collecting for, and how much the original debt was for (not the amount they’re asking for). If it’s a medical debt, make sure it wasn’t supposed to be paid by your health insurance (this is actually quite common).

Confirm how old a collection is.

Let’s say you have two collections on your account. One is a year old. The other one is almost seven years old. You can only afford to pay one of them. Which one do you think you should pay? If you picked the younger debt, you’re right. Collections fall off of your credit report after about seven years. So be strategic about how you pay down debts if you have older ones. If something is close to seven years old, it might not make sense to pay it right now.

(Almost) never pay the full amount they say you owe.

By the time a collections agency is talking to you, they’ve tacked on their fees/interest and sometimes late fees/penalties to your original debt amount. So the amount they’ll tell you you owe is often not what you originally owed, and there’s almost always room for negotiation. A good rule of thumb is to firmly offer to pay 50% of what they say you owe, and only if they will completely remove the collection record from your credit report at with all of the bureaus. Worst case, make sure they take off their fees and penalties – long story short, only pay the amount of the original debt.

Try to get the collection item completely removed fro

One thing a lot of folks don’t know is that collections agencies have a variety of ways they “remove” things from your credit report. They can mark a collection as “paid in full” or “settled”, but in those cases, the collection still stays on your report for about 7 years. If at all possible, you want a collection to be completely removed from your credit report with all of the bureaus (definitely Experian, TransUnion, and Equifax, and any other smaller bureaus to which they report).

Get it in writing

Whatever agreement you come to with a collection agency, make sure you get the terms in writing from them before you pay the debt. Email is fine.

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