If you miss making one or more consecutive payments on a debt, it could get sent to a third-party collection agency. Once this happens, it’s listed on your credit report as a collection account. That action could have a negative impact on your credit score. To reduce the chances of that happening, here’s how to deal with an account in collections.
Confirm you owe the debt
You can view and download a copy of your credit report from each of the three credit bureaus once per year — Equifax, Experian and TransUnion — at annualcreditreport.com. Once on the site, you'll need to complete the request form, select your reports and verify your information for security purposes.
With your report in hand, confirm all information regarding the debt is correct. If anything is reported incorrectly, immediately dispute the information with the credit bureaus, ideally in writing. If you have any transactions by phone, document them.
Contact information for credit reporting agencies
Visit each agency’s website for answers to frequently asked questions or for its mailing address, if you prefer to request your free credit report by mail.
Pay or settle the debt
The easiest way to satisfy a collection, once you’ve confirmed it is legitimate, is to pay the entire amount due. Once the collection agency receives your payment, the agency should notify the credit bureaus the collection is paid in full. The benefit to paying off collection accounts is that it could improve your credit score. Paying down the debt shows lenders you’re making an effort to take care of your financial responsibilities.
If you’re unable to pay in full, ask the collections agency for a settlement. This approach allows you to pay a portion of the full amount owed in exchange for the account being reported as paid on your credit report. According to the Fair Credit Reporting Act, the collection will remain on your credit report for seven years after the initial reporting date. However, the attempt to repay your debt may influence lenders to take a chance on you should you need credit again.
Disputing a collection account
If you were not able to pay any portion of the debt, the collection account could remain on your credit report for longer than seven years. That’s because collection agencies often try to “re-age” collection accounts by creating a new delinquency date. If a collection account remains on your credit report past the seven-year period, dispute the debt with the credit bureaus.
If you need help getting back on a solid financial track, call or visit your local branch to meet with a financial counselor.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.