Paying off a collection account isn't enough to get it removed from your credit report. The Fair Credit Reporting Act (FCRA) requires creditors and collection agencies to report accurate information to the credit bureaus. This article discusses how long collections accounts can stay on your credit report, whether a collection account hurts your credit score, and what you may be able to do to get the collection account off your credit report.
Written by Attorney John Coble.
Updated September 18, 2021
Many people are angry when they see a collection account on their credit report that they paid off. They're even angrier when the credit bureau refuses to remove this account. This article discusses how long collections accounts can stay on your credit report, whether a collection account hurts your credit score, and what you may be able to do to remove the collection account from your credit report.
In this article, the terms debt-buyer and collection agency will be used interchangeably. There are some subtle distinctions in these terms but for the purposes of this article, those differences are irrelevant. Where the debt is still with the original creditor such as a credit card or student loan lender, the term creditor will be used. A debt collector is anyone collecting debt for a creditor, debt-buyer, or collection agency.
If I Pay the Collections Account, Will It Be Taken Off My Credit Report?
Paying off a collection account isn't enough to get it removed from your credit report. The Fair Credit Reporting Act (FCRA) requires creditors and collection agencies to report accurate information to the credit bureaus. The three major bureaus are Equifax, TransUnion, and Experian. The credit bureaus' reason for wanting to keep paid collection accounts on the credit report isn't only to comply with the law. The credit bureaus don't want the information removed from your report because their customers want your full story. The creditor bureaus' customers (lenders) don't want the information to be missing when they're trying to determine if they'll make a loan to you.
Collection agencies also have contracts with the credit bureaus that prohibit them from removing accurate accounts, even if that information is negative like a charge-off or missed payment. If the collection agency breaches this contract requirement, the credit bureaus can stop allowing them to report to the credit bureau. This can put a collection agency out of business because the primary way these agencies get you to pay is by reporting nonpayment to the credit bureaus. Without the contracts with the credit bureaus, the agency will have a difficult time collecting debts. A collection agency that isn't able to collect will soon be out of business.
Even so, you may have heard that you can get a debt collector to remove the collection account from your credit report. It does happen, but it’s rare. There are two ways you can approach this. You can write a goodwill or pay-for-delete letter to the collection agency.
A goodwill letter is a humble letter where you ask the original creditor to delete a negative item on your report. This probably won't work, but it does sometimes so it's worth the effort. In the letter you should:
Accept responsibility for the past-due payments;
Explain why you weren’t able to pay at the time, such as you lost your job or had unexpected medical bills;
Let the creditor know you're back on track; and
Explain the hardship the negative item on the credit report is causing you and ask them to remove the negative information.
You can also try to negotiate a pay-for-delete settlement. If you were delinquent with a creditor for long enough that the account was charged off, you’ll need to negotiate with the collection agency. Usually, you can offer to pay less than the full amount. This is because the collection agency has often bought the debt for pennies on the dollar. They don’t have to be fully paid to make a profit. In a pay-for-delete, the debt collector agrees to remove the account from your credit report in exchange for you paying all or an agreed-upon amount of the debt.
If you're able to negotiate a pay-for-delete settlement with a collection agency, make sure you get the agreement in writing. If the collection agency agrees to a pay-for-delete settlement with you, it’s breaching its agreement with the credit bureau. If it'll breach its agreement with the credit bureau, it'll breach its agreement with you. You need written proof of your agreement so you can enforce the agreement in court if necessary.
It’s also important to realize that a pay-for-delete agreement will only remove the collection account. The unpaid item will still show with the original creditor. You would need a goodwill letter to get the original creditor to remove it also.
How Long Do Debts in Collection Stay on My Credit Report?
A collection account remains on your credit report for seven years like a late payment. But the underlying debt that’s in collection stays on your credit report for seven years plus 180 days. To most people, this sounds like a contradiction, but it isn't. If you miss a payment, the debt may be in delinquency for up to 180 days on your credit report before it’s charged off and sent to collections. Then, it is allowed to stay on your report for seven years as a collection account.
If a debt buyer sells the debt to another debt buyer, the seven-year timeline does not restart. The new debt buyer will only have whatever time remains to report to the credit bureaus. For example, if the first debt buyer attempted to collect for four years and then sold the debt to a second debt buyer, the new debt buyer will only be able to report the collection account for three years.
In this example, if you paid off the second debt buyer after they had attempted to collect for two years, the paid-off collection account can remain on your credit report for one more year. This is because the second debt buyer only had three years to report to the credit bureaus. Since you paid after two years, there'll only be one year left for the paid collection account to remain on your credit report.
Do Paid-Off Collection Accounts Count Against My Credit Score?
Paid collection accounts stay on your credit report, but do they count against your credit score? The good news is that credit scoring formulas are often updated. The latest credit scoring models don't factor paid collection accounts into your credit score. The FICO score 9.0, VantageScore 3.0, and VantageScore 4.0 scoring models don't consider paid collection accounts.
The bad news is that not all creditors are using the new scoring models. There's no way to know which creditors use the new scoring models and which use the older models. These older scoring models do count paid collection accounts against your credit score.
What Can Be Done About a Paid-Off Collection Account on My Credit Report?
Your chances of getting a paid collection account off your credit report depend on whether the account information is accurate. If the account is inaccurate, your chances of getting the collection account off your credit report are high. If the information is accurate, you can try writing a goodwill letter or you may just have to wait it out.
Dispute Inaccurate Information
Information on your credit report may be inaccurate for several reasons. For one, the item may have been on your credit report longer than the allowed seven years. Or accounts could be listed that aren’t yours. This may be a sign of identity theft or of a mixed credit report.
Mixed reports are credit reports with two or more people erroneously included in the same report. This is caused by the creditors or credit bureaus not sufficiently matching identities. This has happened due to not matching all nine digits of the social security numbers. Sometimes, it happens due to people having the same or similar names.
If an item on your report is inaccurate, it must be removed by law. To have it removed, you can send a dispute letter to the credit bureaus. Your dispute letter should state in detail which account has the error and what the error is. You should also provide any supporting documentation to the credit bureau. Send your dispute via certified mail to the credit bureau.
If the credit bureau refuses to remove an inaccurate item, you'll be able to sue the credit bureau under the Fair Credit Reporting Act (FCRA). It's a good idea to consult with a consumer attorney when a credit bureau refuses to remove an inaccurate item.
Wait it Out and Do Credit Repair
In most cases, you’ll just have to wait it out to get a paid collection account off your credit report. The debt can stay on your credit report for seven years plus 180 days from the original delinquency date. After that time it must be removed from your credit report. If it's not, you can send a dispute letter. If it’s not removed after you send the dispute letter, you can file a lawsuit under the FCRA.
While waiting for bad credit items to fall off your credit report, you can do some credit repair by adding positive information to your credit history. You simply need to make all your monthly payments on time and decrease your credit utilization ratio. That’s the amount of credit you're using as a percentage of the total credit available to you. Even if you have cards you don’t use, keeping those accounts open will help improve this ratio.
You can also get your free credit report and make sure that debt that is more than seven years old has been removed.
Collection accounts usually remain on your credit report for seven years whether you’ve paid them or not. The underlying debt may stay on your credit report for seven years plus 180 days. Though this information may harm your credit, it’s not usually possible to have it removed from your credit report if it’s accurate. If the unpaid collection account is accurate, it's a good idea to pay it off as soon as possible. A paid-off collection account looks better than an unpaid collection account.
You can try to have an unpaid collection account removed from your credit report by negotiating a pay-for-delete settlement with the collection agency. You can also try sending a goodwill letter to the creditor, explaining why you weren’t able to pay and asking them to remove the account. If nothing else works, remember the item will drop off after seven years in collections.
If an unpaid collection account is on your report due to an error, you should file a dispute letter with the credit bureau. Doing so and having the item removed can help boost your credit score.