An account that lands in collections is typically the result of a series of missed payments. It’s also one of the quickest ways to sink your credit score. After all, much of the criteria that determines your credit score depends on your payment history — and even one collection account could send your score into free fall. Unfortunately, the history of your collection item will remain on your credit report for seven years after the date of the first missed payment, affecting your loan approvals and interest rates.
The effect on your credit score will vary, depending on the amount of the account in question and the level of your score when the collection occurred. A low-dollar collection item will likely affect your overall score much less than a larger one. Generally, the higher your score when the collection takes place, the more points you’ll tend to lose.
Although you could wait seven years for the collection item to fall off your report, it’s better to be proactive and approach the problem head-on. With hard work and persistence, you can reverse some of the damage done to your credit score. Read on for our top four tips for recovering your credit score after you have an account transferred to collections.
1. Focus on the Positive Information
The negativity on your credit report won’t disappear overnight, but you can lessen the damage by boosting the more positive elements of your score. Payment history comprises as much as 35 percent of your total credit score. Resolve to keep all of your credit card and loan payments current — and make sure that you keep those “positive” accounts open, even when you aren’t actively using them. The length of your credit history is also a substantial factor in your credit score, so the older and more timely paid accounts you have on your credit record, the better. Gradually, these critical, everyday efforts will result in a steadily improving score.
2. Open Up New Accounts
Another way of tilting the balance in your favor is to open up new accounts, which you can in turn use to build up some more positive marks. A secured credit card is an excellent option if you’re trying to rebuild credit because it offers minimal risk to both you and the card issuer — you can only “charge” what you’ve agreed to deposit into the account. When you pay off the new accounts every month, your score will rise — and the collection item will gradually factor less and less in the overall calculation of your credit score. Just make sure that you aren’t taking on too much too soon — the key is to focus on one or two new accounts that you will easily be able to pay on time every month.
3. Pay the Outstanding Balance
Unless you’re dealing with a very understanding collection agency, you probably won’t be able to get the collection account deleted from your credit report. Still, it doesn’t hurt to ask. In a “pay for delete” letter, as it’s known in the business, you can offer to pay the collection account in full in exchange for its removal from your credit report. Worst-case scenario? The agency turns you down and the account remains on your report, but potential lenders will still be able to see that you at least paid the balance due on the account.
4. Write a Goodwill Letter
Another possibility is to pen a letter to the collection agency, detailing the financial hardships that led to your account landing in collections. You will want to be specific about the particular circumstances, as well as the steps you have taken to regain your financial footing. Wrap up the letter with a request that the collection agency consider your special circumstances and delete the account from your credit report. If you do not hear anything within a few weeks, follow up with a phone call. Sometimes, persistence can pay off.
It’s important to also consider whether the account transferred to collections has been reported correctly. If it wasn’t — or the collection item belongs to someone else — you may have an excellent case for disputing that item with the credit bureaus. The pros at Ovation Credit would be happy to review your situation and, if necessary, file a dispute on your behalf. Reach out to our team and learn more about how we help consumers like you.