Managing an account in collections

Man calculating his bills while his family are on the sofa

If you missed making one or more consecutive payments on a debt, it could get sent to a third-party collections agency. Once this happens, it’s listed on your credit report as a collection account and could have a negative impact on your credit report and credit score. Here’s how you can reduce the impact to your score.

Confirm you owe the debt

Start by getting a copy of your credit report from each of the three credit bureaus, Equifax, Experian, and Transunion, at annualcreditreport.com. You can also call or write to each to request a copy. (See contact information below.) You’re allowed a free copy of your credit report once a year.

Once you have your report, confirm all information regarding the debt is correct. If anything is reported incorrectly, immediately dispute the information with the credit bureaus by phone or letter.

Contact information for credit reporting agencies

Visit each agency’s website for the mailing address or for answers to frequently asked questions.

Equifax: 800.525.6285

Experian: 888.397.3742

TransUnion: 800.680.7289 

Pay or settle the debt

The easiest way to satisfy a collection is to pay all of the amount due. Once the collection agency receives your payment, they will notify the credit bureaus the collection is paid in full.

Even when your account is already in collections, it’s better for your credit score to pay what you owe. According to the Fair Credit Reporting Act, the collection will show on your credit report for seven years from the initial reporting date. Paying shows lenders your effort to take care of your financial responsibilities.

If you’re unable to pay in full, ask the collections agency for a settlement. You pay a portion of the full amount owed in exchange for the account being reported as paid on your credit report. The collection will remain on your credit until the seven years is up, but it will show lenders you were willing to work out an arrangement to take care of as much of the debt as you could afford. That attempt to pay back what you owe may be a positive sign to lenders to take a chance should you need credit again.

Dispute the debt

If you were not able to pay any portion of the debt, the collection account could remain on your credit report for more than seven years. That’s because collection agencies often try to “re-age” collection accounts by creating a new delinquency date. This causes the collection account to remain on your credit report longer than it should. If a collection account remains on your credit past the seven-year reporting period, dispute the debt with the credit bureaus.

There are two possible reasons why you might dispute a debt: either by disputing the collection amount or if there is missing information about the new collection agency. Every time a debt is sold to a new collection agency, the debt can be disputed if the amount owed is incorrect. If so, take steps to ensure the correct amount is being reported to the credit bureaus.

You may also dispute the debt if there’s no valid contact information for the new collection agency. It’s common practice for collection accounts to be sold to different collection agencies every six months. In the process, your credit report may not be updated properly to reflect the current agency holding the account.

Anytime you’re working with a collection agency, keep records of everything. It’s best to document conversations in writing in case you need to dispute information about your collection with the credit bureaus. The more documentation you have to show, the better.

If you need help managing your money, members can call or visit their local branch to meet with a financial counselor.

The advice provided is for informational purposes only.

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