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Collections significantly impact your credit score, sometimes removing tens or over a hundred points from your score overnight. Getting a collection deleted from your report may be handy when building your credit.
While you may not get an excellent credit score (700+) with collections on your credit report, you can build your credit and remove collections from your account at the same time.
Discover the best way to handle collections on your credit report and what you can do to build credit even with collections on your credit account.
Is a 700 Score with Collections Possible?
When you miss a payment for at least 30 days after the due date, your lender may sell the debt to a collection agency. Most will wait 60+ days before doing so, and the agency will make arrangements to contact you about settling the debt.
Collections can be made on a:
- Personal loan
- Medical debt
- Credit card debt
- School loan
The collection agency opens an account that they are obligated to report. These accounts then show up on your credit report.
Your credit score gets a penalty whenever a collections account is opened with any debt collector, even after the account is settled.
Many people think that paying off collections will automatically repair their credit.
This is not the case.
You should pay off your missed payments, debts, and loans, but removing collections from your credit profile is another thing.
It is important to note that the newer FICO 9 and 10 models do not penalize paid collections.
Getting a 700 score with collections may take some time. However, there are ways to get collections off your account faster.
How Do Collections Affect Credit?
Every collection account can attract a penalty of 100+ points on your credit. Multiple collection accounts will hurt your credit even more.
If you have a credit score of 700+, a collections account will affect your credit score more severely than someone with a credit score of 550.
The effect of collections on your credit score depends on your credit history. You may have some credit card debt that you have yet to pay for 30, 60, 90, or even 120 days. Each one is weighted differently to the credit score.
It’s important to note that the weight of a collection account in your credit history will reduce over time.
So if you have multiple accounts, paying off the newer accounts will improve your credit score more than paying off an older one.
Keep in mind that lenders use the FICO 8 scoring model the most and that it penalizes paid collection accounts. So you may not see a credit score increase after paying them off.
Collections will reflect in your credit report for about seven years.
When trying to repair credit, removing collections is a good way to begin before considering credit utilization, credit limit, and credit builder loans.
Here are three ways to get collections off your credit report.
How to Get Collections off Your Credit Report
1. Offer to “Pay For Deletion”
When you pay off your collections account, you can negotiate to delete it from your credit history.
There are two ways that your debt collector can delete your collections account:
- You can ask for a goodwill deletion by explaining your circumstances.
- Negotiate a deletion fee.
You will want confirmation of the deletion agreement before you submit payment. After your payment, it is up to the collection agency to delete the collection from your account.
To send your offer to pay for deletion, you can send a “pay for delete letter” to the debt collector.
If they agree, they will contact the credit bureaus directly.
2. Send Dispute Letters to the Credit Bureaus
An alternative way to remove collections from your credit history and restore good credit is by sending dispute letters to the credit bureaus.
In your letter to dispute for the record, include the facts explaining why you are disputing the record directly to the credit bureaus.
Filing your report the right way is key to receiving positive feedback from the credit bureau. You don’t want to send a report only for the credit bureau to reject it.
Write a letter to the credit bureau with supporting documents and highlight the areas you are disputing in the letter. Highlighting these areas will help the credit bureau process your dispute quickly and give you feedback on their verdict.
The supporting documents are KEY because they are the evidence that you are correct.
You may need to dispute things several times before they fall off the credit report.
3. Pay It Off
You can pay off your collections and hope that, with time, your credit score will improve. As mentioned earlier, the newer credit scoring models won’t let your paid off collection account hurt your credit score.
Unfortunately, FICO 8 is still the most commonly used credit score, and it will not give you a boost for paying off your collection account.
The options mentioned above are better, as this method relies on time to help you repair your credit score.
After two years, your collection account will not impact your score much at all. But if you start making payments or pay off the collection completely, it will then renew that collection as if it was a brand new collection again.
It’s better to send a dispute offer to pay for deletion. Both of these are faster methods of cleaning your payment history.
Building Your Credit after a Collection
Credit score statistics show that a credit score above 680 is considered good credit. You get lower interest rates, better benefits, and some decent credit cards in this range.
To put the lower interest rates into perspective, someone with a 600 score might have a used car loan at 15.86%. If the same person were to raise their credit score 100 points to 700, they might get a 5.47% interest rate.
In addition to removing derogatory information, you can rebuild your credit score after something like a charge-off or a collection by adding positive information to your credit report.
Pay your credit cards on time to avoid them being sent to collections.
Some lenders offer credit cards to rebuild credit. You can also start with a secured credit card and build your way into the 700s while being patient.
It may take a shorter time if you pay your credit cards on time, keep your credit utilization low, and have a healthy credit mix.
You can have a massive hit on your credit overnight, but you can’t rebuild it in a similar time frame.
How Long Do Charge-Offs and Collections Stay On My Credit Report?
Charge-offs and collections are treated similarly to late payments on your credit card or any form of debt.
They have a significant impact on your credit score. But they only last for a while on your credit report.
Collections last for about seven years before they stop reflecting on your report.
There are ways to remove collections from your credit report, like disputing or paying for deletion, but you may need to consult on which method would work best for you.
How Much Will My Credit Score Increase When I Pay off Collections?
When you pay off collections, it indicates on your credit report that it is paid, but it still shows that you had collections.
Whether your credit score will be affected after paying off collections depends on the scoring model used.
The new scoring models do not penalize paid collections. But the newer scoring models are less popular with lenders. The FICO 8 model is more widely used, and it does not give you a boost for a paid collection.
To be safe, use the methods described in this article to clear collections from your credit report.
The penalty for having collection accounts can be upwards of 100 points.
Can I Still Raise My Credit Score With Collections?
Yes. If your credit is affected severely by collections, you should start rebuilding it using various methods, such as getting a secured credit card and building from there.
Also consider credit counseling or do extensive research on how to help you with credit repair. Experts suggest keeping your credit utilization under 10% if you are able.
Credit builder loans are another way to salvage your credit and build a good payment history.
However, if you keep your collection accounts on your credit report, it will take at least two years to get an excellent credit score.
I am a Certified Lending and Credit Specialist and first gained experience fixing my own credit. My own credit scores went from the 500s to the 800s in one year. I studied economics at The George Washington University and now have my own business working with financial technology companies. I manage my own investments and live in Salt Lake County, Utah with my wife and two kids.