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30
Mar

How to Pay Off Collections

If you’re working to pay off collections, it’s imperative you fully understand the many complicated facets of our credit and debt systems. As you’ll soon discover our current systems are out of whack, and it’s coming at the expense of your credit score.

Did you know collections are the most common type of bad credit? Further, the debt collection industry is notorious for being riddled with errors. Not to mention our government fines collection agencies every single year for violating consumer rights.

The most common complaint from consumers, is they don’t recognize the collection agency contacting them, and demanding payment. It makes sense, because virtually every type of consumer debt can go to collections from credit cards, utilities, cable providers, you name it.

The most common type of collections are for medical bills, this is estimated to represent over 1/2 of all collection accounts, affecting approximately 43 million American’s. And this number can only be on the rise with the skyrocketing of deductibles under our current train wreck of a health care system, ala Obamacare.

Get a FREE credit consultation with certified FICO professional by calling toll-free 1-877-418-7596.

Change is on the horizon, or so says FICO. FICO is the company responsible for calculating consumer credit score’s and even they recognize how screwy their current system is. Which is why with their newest scoring model, FICO 9, will ignore collections of $100 or less.

The coup d’etat of the new model, is any collection accounts with a $0 balance, will be ignored. This is in total contradiction to the current system, where it matters not if the collection account is paid or not, your credit score is still going to be screwed. There are additional minor changes with FICO 9.

The problem is while FICO 9 is currently available, it’s not being used. And there’s no immediate date when it appears lenders will start using FICO 9, because it an expense for them to update their systems. In other words, it doesn’t matter, because no one is using FICO 9, and it doesn’t look like lenders will be anytime soon.

Does Paying Off Collections Improve Credit Score?

As we approach 2017, not today or any day in the foreseeable future. FICO says: “The fact that you have collections listed on your credit report will almost certainly lower your FICO score.”

They go on to say: “As far as your FICO score is concerned, two things are considered; has a collections appeared on your credit report, and when it was reported. So whether or not you pay your collections off is really a personal decision.”

The Experian credit bureau says: “Paying the debt won’t necessarily help your credit scores. Accounts that get to the collection stage are about as negative as it gets. Only bankruptcy is worse. As a result, any improvement, especially right away, probably will be very minor.”

In sum, simply paying off collections will not improve your credit score. The key is clear credit history and remove collections listings. This is how to most effectively repair credit.

Get a FREE credit consultation with certified FICO professional by calling toll-free 1-877-418-7596.

There are a variety of ways to clear your credit, depending upon your unique circumstances. We’ll share in a moment, however it’s important that you don’t just ignore debt collections and with the false belief they’ll just disappear like a fart in the wind.

Once a lender or creditor sends an account to a collection agency, if the account isn’t paid, it’s almost always is sold to another third party collection agency. And this continues from one agency to the next, and each one of these collection agencies will report additional bad credit history about you.

Naturally destroying your credit worthiness. And eventually a late stage debt collector will buy the rights to your account, and file a civil lawsuit. As in they’ll sue you for payment.

This can result in a judgement and that’s going to annihilate your credit score. Further, depending on your state of residence it can lead to wage garnishment, liens being placed against you and or your property, and even asset seizure.

I promise, there’s many late stage collection agencies that specialize in filing lawsuits, with a multitude of in house attorneys on staff. Just a few years ago, one of the bigger agencies, had an employee testify to fraudulently signing 200 to 400 affidavits per day. This is the evidence that’s used in court to prove the debt is legit. Unbelievable.

How To Get Collections Off Your Credit Report

You’ve certainly heard you have to live with an accurate bad credit listing on your credit reports, for seven long, expensive, and embarrassing years. It’s true, the Fair Credit Reporting Act (FCRA) says the maximum amount of time a negative item can remain on your credit report is seven years.

Did you catch that? Seven years is the maximum, there is no minimum amount of time any item must be on your credit reports. In truth, our lenders and creditors aren’t required to report anything about our accounts.

The good news is every single year, the credit bureaus remove millions of collection listings from consumer’s credit reports. So banish the idea that you’ve been sentenced to a poor credit score prison, and your financial affairs are doomed for the next seven years.

Get a FREE credit consultation with certified FICO professional by calling toll-free 1-877-418-7596.

1. Request Debt Validation

If you’re currently dealing with obnoxious phone calls, demanding letters, and these days even emails from aggressive debt collectors, the first step is to request validation on your account. This is best accomplished in writing and using certified mail.

The Fair Debt Collection Practices Act (FDCPA) is the federal statute that gives you this consumer right. And it requires the collection agency to respond by providing you with evidence and documents that prove this is in fact your account.

If they fail to validate your debt, then you’re no longer legally responsible for payment. Further the collection agency is required to notify the credit bureaus to have them remove collections from credit report files, regarding this account.

2. Statute of Limitations

This next weapon is called the statute of limitations and it regulates how long you’re legally responsible for repayment of a debt. Unlike in medieval days, we no longer have debtor prisons, nor are you legally responsible for payment of a debt forever.

Generally, you’re legally responsible for seven years from the first date of delinquency with the original creditor. Once this time window runs out, then the debt is forgiven and the bad credit is suppose to be removed from your credit reports.

This is a state law, and the exact amount of time does vary, so please investigate your local listings. It’s important to note, this applies to the vast majority of types of consumer debt. However the few exceptions include federal student loans, and income taxes.

One of the most common violations in the debt collection industry, is to ignore the statute of limitations. And it’s because the collection agency loses. This is why many debt collectors will illegally re-age consumer accounts, so they continue to attempt to collect payment.

Take note, simply acknowledging a debt over the phone with a collection agency can restart the statute of limitations, please be careful. You’re swimming in treacherous waters, negotiation with when collection agencies.

If your account is validated, you’ll receive documents that will show your date of last account activity. You should double check your records to make sure this debt is being properly reported, and it’s within the statute of limitations before moving forward.

3. Negotiate a Settlement For Less

Listen, collection agencies either work on a consignment deal where they share any money collected from consumers, with the lender. Or they’ve purchased the rights to your account, and for just pennies on the dollar.

At any rate, they’re happy to accept a settlement payment for less than your total balance. Often you’ll be able to negotiate and pay anywhere from 40% to as little as 10% of your balance. The older your account is, the less you’ll likely have to pay.

It’s mission critical that you get the collection agency to agree that in exchange for your payment, they’ll stop reporting your account information to the credit bureaus. If you overlook this part of your settlement agreement, the only thing that’ll happen when you make payment is a change in the status of your collection.

It’ll be changed to a paid collection. Anthony Sprauve, a spokesman for FICO, says collections on your credit report can damage your score by up to 100 points. In order to get clear credit, we must get the collection agency to agree to stop reporting your account information.

Get a FREE credit consultation with certified FICO professional by calling toll-free 1-877-418-7596.

4. Credit Bureau Dispute

In this last step we’re exercising your consumer rights granted under the FCRA. This legislation gives you the right to challenge any item on your credit reports, that you believe is inaccurate, made in error, or incorrect.

You’ll need to challenge the collection listing on your credit report, and will have to file a credit bureau dispute. You can do this by mail, over the phone, and online. Once the credit bureaus receive your dispute and find it valid, they’re required to investigate the item.

During which they’ll contact the collection agency and request verification of your account. As per your settlement agreement the collection agency, they won’t verify your account with the credit bureaus. In accordance with the FCRA, this means the credit bureaus must remove the item in question. This is how to get collections off your credit report, and legally.

Wrap Up

There are changes in the credit scoring model, and these changes are in the pipeline. As of today, the affects are not here, and if you’re repairing bad credit, you can’t afford to wait. It’s vital that we work under the old scoring model, currently, and remove collections from your credit reports.

Please, don’t just pay collections with the false idea it’s going to improve your credit score. Nor just ignore collections because they only thing worse, is to get slapped with a judgement on your credit report files.

You have an abundance of consumer rights, and when properly deployed this is a powerful tool chest of weapons to fight back and protect your rights, your credit, and your wallet. Most consumers get bullied and plowed over when dealing with these hucksters.

We encourage our members to consider professional credit help. One of the best firms is the Credit Pros. They’ve helped clients remove late payments, collections, charge offs, judgements, repossessions, tax liens, foreclosures, repossessions, and even bankruptcy listings from their credit reports.