One of the most common questions I’ve received over the years goes something like this:
“I have collection accounts on my credit reports and I’d like to clean up my credit. What is the best way to take care of them?”
One of the biggest misconceptions about collection accounts is that paying them will somehow improve your credit scores. Unfortunately, that’s typically not the case. A collection account doesn’t disappear from your credit reports when you pay it off, and as long as it remains there, it affects your credit scores.
The debt collector may tell you they will update the account to say “paid in full,” which can be helpful if you are trying to get a mortgage and the lender requires that you pay off the account. But you probably won’t see a boost to your scores as a result. (Your report should list a zero balance for that account, however. If it doesn’t, dispute it.)
So how do you get a collection account off your credit reports? One strategy you might have heard about is to ask the collection agency to stop reporting the account in exchange for payment. This is often referred to as a “pay for removal” deal. But does it work?
[Consumer resource: Statute of Limitations On Debt Collection by State]
It depends. For the record, collection agencies really aren’t supposed to delete information from client’s credit reports in exchange for payment. It’s not that it’s illegal. After all, there is no law requiring companies to report information to the credit reporting agencies (CRAs). However, collection agencies sign agreements with the CRAs to which they areport, and it’s there that these deals are prohibited.
The reality is, however, that some collection agencies will agree to a “pay for removal” deal if it means getting paid. So if you are wheeling and dealing on a past due debt, you’re doing to have to decide if you want to push for this. If you are successful, be sure to get something in writing before you pay. If you don’t, then you’re gambling that the bill collector isn’t making false promises.
What if they won’t play ball? Then you’ll have to decide whether you just want to pay the debt anyway and be done with it. Be sure you understand the statute of limitations that applies, since making a payment may start the clock ticking on the debt all over again.
Paying an old collection account won’t extend the time period that it can remain on your credit reports. Accounts in collection may be reported for seven-and-a-half years from the date you first fell behind with the original creditor, regardless of whether they have been paid or not.
If you aren’t successful negotiating a pay for removal deal, there is one other way you may be able to get the account off your credit reports early. As I wrote in my previous article about this topic, if there is anything inaccurate or incomplete about the account as it’s reported, you have the right to dispute it with the CRA reporting it. If it can’t confirm the account with the source, it will be removed.
[Featured Product: Monitor your Credit Reports and Scores]
Image: jasleen kaur, via Flickr.com