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A collection account is bad news for your credit score, and the damage can last for years. During that time, you may miss opportunities to save on interest rates and insurance premiums, see an increase in offered interest rates if you want to finance a home or car, and generally stall your finances. But how do you know if this is what is bringing down your credit score and, if it is, what do you do?

Review Your Credit Reports

The first step in removing a collection account is to determine which of your credit reports are affected. There are three main credit bureaus in the U.S.: TransUnion, Experian and Equifax. Each bureau is a private company with its own policies, procedures and methods of scoring. Not every place reports to each of the bureaus. As a result, the information found on each of your credit reports may vary.

Every consumer is entitled to free annual copies of their reports from each bureau, which you can see by visiting AnnualCreditReport.com. Once you have them, it’s a good idea to review them carefully for any errors or other problems.

Determine Who Owns Your Debt

Collection accounts carry different consequences, usually depending on who holds the debt. Determining who owns your debt is critical, and it isn’t always your original creditor. For example, suppose you have two collection accounts: a $5,000 medical bill and a $350 credit card balance. After 180 days of non-payment, the medical debt may be referred to your healthcare provider’s internal collection agency. On the other hand, your $350 balance may be sold by your creditor to a separate collection agency. Either way, you’ll need to verify the name of the company and the amount of your debt so you know who to communicate with about your collection account. You may be able to do this by contacting your original creditor or by contacting the company listed alongside the debt on your credit report(s).

Take Action

You have a few options once you learn who owns your debt in collections.

Validate the Debt: A validation request requires the collection agency to provide documentation to prove that they own the debt and that you owe it.

Dispute the Debt: If you discover a debt that isn’t truly yours, or that should be removed from your history because enough time has passed and it’s paid off, you may be able to dispute the debt. You can read more about disputing errors on your credit report in this guide.

Settle the Debt: If possible, you may decide to pay off the debt. You may also strike a deal with the collection agency to work out a payment plan. During this time, you may want to ask them what their reporting process is so you know what they’ll tell the credit bureaus. Note: paying a collection doesn’t generally mean the account will be removed from your credit report. In fact, these accounts can stay on your credit file for 7 years plus 180 days from the date of the delinquency that immediately preceded collection activity. Still, the effects of this debt on your score will lessen over time and many credit scoring models do treat paid collection accounts differently than unpaid one. Some of the newer models actually ignore paid collection accounts completely.

Consult a Professional: You can do all of these things on your own and are under no obligation to use a professional service. However, it may be helpful to consult with someone who has experience, especially if you are repairing errors on your credit report. Their insight could save you time and help you get the results you’re hoping for.

Follow Up

It can take a while to see a change on your credit report after a collection account is removed. It’s a good idea to check back with the bureaus and the collection agency to make sure any updates were actually made. You can also watch to see how this update affects your credit by taking a look at an overview of your credit report for free, updated each month, on Credit.com.

Image: Jacob Ammentorp Lund

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