Having debt in collections is a serious negative mark on your credit report and almost always results in a decline of your credit score. It can be difficult to get new credit cards or other lines of credit while there is a collection on your report. However, there are things you can do to overcome these hurdles. This blog will explore some proven strategies for repairing your credit after you’ve had debt go through collections.
Check Your Credit Reports and Dispute Errors
First and foremost, you should check your credit reports and confirm they are accurate. You can request copies of your credit reports directly from the three credit bureaus (Experian, Equifax, and TransUnion.) If you believe any details are incorrect or that the debt in collection does not belong to you, you should file a credit dispute with the bureau that has reported the delinquency. Writing a credit report dispute letter allows you to formally refute the credit report and provide proof to support your claim.
Additionally, you can request a debt verification letter from the collection agency. This requires the debt collector to send you proof that you owe the debt. If they cannot do this, they must stop trying to collect the debt and you strengthen your case that the debt may be invalid.
Make a Special Request
You can send a letter to the agency that owns your debt or is reporting the collection. There are a few different options available, depending on what fits your situation best. These requests are often denied and won’t necessarily “reset” the damage done to your credit score, even if they are approved. But, at the very least, they can help bolster your case for getting new access to credit.
- Pay for Delete: If you haven’t paid your debt yet, you can request that the mark be removed in exchange for a full payment.
- Goodwill Letter: If you have already paid your debt in full, you can request the mark be removed as a courtesy. Explain your circumstances and sincerely express your efforts and desire to maintain good credit.
- Settlement: As a last resort, you can request to settle the collection, by paying an amount smaller than the full balance. A debt settlement mark is better than an unpaid collection but still considered a negative mark that hurts your credit score, compared to a fully paid collection.
Pay Off Debt in Collection or Wait for it to Expire
Paying off the collection balance won’t immediately remove the negative mark from your credit report and it won’t help your score rebound right away. However, paying your balance is an important sign of good faith that you want to improve your credit habits. That said, if the delinquent account is 6 years old or more, it may be better to just wait. Collections are limited to 7 years, so the account will be automatically removed from your credit report at that time, regardless of repayment.
Start Showing Positive Habits
The best way to rebuild your credit is to start adding positive marks to your credit report. Payment history is the most important factor in assessing your credit score, so keep all other debts in excellent health. Pay everything on time, every month (at least the minimum payment – if you can pay the full balance, do so.)
If All Accounts are in Collections
If all your credit accounts have debt in collections, you’ll want to open new accounts if possible. This can be hard to do with delinquent marks on your credit report, however, there are a few options:
- Some lenders offer credit cards specifically aimed at rebuilding credit.
- You can also get a secured credit card, which requires a deposit as collateral.
- There are also credit-builder loans, designed to help people build credit.
It’s important to note that secured credit cards and credit-builder loans work differently from traditional credit options and often come with unfamiliar rules and fees. Be sure to understand these options thoroughly before pursuing them.
Be Patient – Credit Takes Time
You can hurt your credit instantaneously, but rebuilding takes time and consistency. How long will depend on many factors. Be encouraged, though; lots of small, positive actions will add up over time.
Consider improving your habits for a more sustainable financial future. Limit the use of credit cards, avoid opening unnecessary lines of credit, talk to a financial advisor, ask for help from a credit counselor. Apps, such as Credit Karma, You Need a Budget, Mint, and others will allow you to watch your progress and track healthy habits. Credit scores are recalculated regularly, so if you stay focused and intentional, you will start to see positive results trickle in.
