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Collections

Should I Dispute a Collection?

Through April 20, 2021, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.

Your credit reports contain a wealth of information about your credit management practices. Loans, credit cards, bankruptcies, collection accounts, credit inquiries and other information commonly appear on credit reports and are used as a basis for your credit scores, which are a key part of lenders' risk management decisions.

Because this information is critical to how lenders perceive your credit management habits when you apply for a loan or credit card, it's important that all the information on your credit report is accurate. If you believe any account information is incorrect, you should dispute the information to have it either removed or corrected. If, for example, you have a collection or multiple collections appearing on your credit reports and those debts do not belong to you, you can dispute them and have them removed. However, if they are a result of missed payments on accounts you own, disputing them will not change your credit file. Here's what to know.

What Is a Collection Account?

When you take out a loan, credit card or any other form of credit, typically you must agree to make timely payments on your account.

If you don't make your payments on time, your account may eventually become past due and—if you miss enough payments—fall into default. If you default on a credit account, an apartment lease or another type of service, the creditor may assign your debt to a third-party debt collector, or collection agency. These companies attempt to collect debts from consumers whose accounts are in default with their original creditors. Collection agencies are allowed to report your collection accounts to the three national credit reporting companies, Experian, Equifax and TransUnion.

The debt collector will likely contact you via phone call or letter asking that you make payments to them to satisfy the debt, which is perfectly legal. When you make payments to the debt collector, they will keep a portion of the amount as their fee and return the rest to the original creditor. Once your collection has been paid off, your credit reports will be updated to show the account has been paid and reflect the new zero balance.

Collection accounts, like most negative credit report entries, can remain on your credit reports for up to seven years from the date your account first became delinquent with the original creditor. Collections can cause your credit scores to suffer, although newer versions of credit scoring models published by FICO and VantageScore® ignore collections that have been paid off.

When Should I Dispute a Collection Account?

If you have a collection account on your credit report that you believe doesn't belong to you, you should file a dispute to have it removed. The process for filing a dispute is relatively simple and generally starts with you pulling your credit reports, which you can do for free weekly through at least April 2021 at AnnualCreditReport.com. You can also get your Experian credit report for free through Experian.

Normally, collections are disputed because the debtor believes they are incorrect for some reason. For example, if you review a copy of your credit report and you see a collection account that you believe belongs to another person, has an incorrect balance or is greater than seven years old, you can file a dispute. (Keep in mind that payments made on your account may not be reported to the credit reporting agencies immediately.) If, however, the debt is valid and you simply disagree with the fact that your original creditor sent it to collections, disputing it will likely result in the account being verified as accurate and remaining on our credit file.

How to Dispute an Account in Collections

If you identify what you believe to be inaccurate collection account information, you can contact the credit reporting company that is reporting the collection and formally log your dispute.

Use the following links to file a dispute with the appropriate credit bureau or bureaus:

You also have the option of contacting the collection agency directly and filing a dispute with them. This is formally referred to as a "direct" dispute because you are contacting the source of the allegedly incorrect information directly. If the collection agency concludes through their investigation that the collection account is, in fact, being reported incorrectly, they must either remove it from all of your credit reports or correct any erroneous information. In this case, keep an eye on your credit reports to ensure the company had the account removed.

How to Deal With Accounts in Collections

The easiest way to deal with collection accounts and collection agencies is to avoid them altogether by paying all of your credit obligations on time. If you never have an account go into default, you'll never have to deal with collection agencies or worry about collection accounts on your credit reports. Of course, if a collection account mistakenly appears on your credit report, that is a good reason to request to have it removed.

If you do end up with legitimately reported collection accounts, there are some steps that will make the process less stressful:

  • Don't ignore the debt. Ignoring the debt or the debt collector will not make either of them go away. In fact, if you ignore the debt or debt collector for too long, they may end up suing you—and that you cannot ignore or you'll end up with a default judgment filed against you.
  • Deal with the creditor first. Contact the original creditor or service provider and ask if they'll allow you to resume making payments to them directly. Some will allow for this, some will not. If the debt is returned to the original creditor, the collection agency should delete its account from your credit reports. This process is sometimes referred to as the collection account being "canceled" or "returned to the creditor."
  • Try settling the debt. You can certainly make an offer to the collection agency for less than you actually owe. This is called an Offer in Compromise or a settlement offer. For example, if you owe the debt collector $1,000, they may be willing to take $500 and consider the debt to be settled in full. This will end the collection process and result in a zero balance on your credit reports, but with the account showing "settled" rather than "paid in full." Settling a collection account will not result in it being removed from your credit reports, though, as paying off the collection in full would.

How Can Collections Affect Your Credit, Your Life and Your Employment Prospects?

From a scoring perspective, collection accounts are either considered neutral or negative, but are never considered positive. In some cases you may be required to pay off a collection account before you can take out a new loan.

Collections often lead to lower credit scores. The practical impact of this is that you may either be denied credit outright or be approved with a higher interest rate and less favorable terms if you apply for credit while the collection account is on your credit report.

Finally, it is perfectly legal for an employer to view an applicant's credit report as part of the pre-employment screening process. There is a chance an employer may not hire a person if they have defaulted debts in collection on their credit reports. For example, if you have over $7,500 of defaulted debt on your credit reports, you would be disqualified from working for the Transportation Security Administration.

The Bottom Line

You are better off avoiding the entire debt collection process if at all possible. If you can pay your bills on time, then you'll never get a phone call or a letter from a collection agency and you won't have to deal with a collection account appearing on your credit reports and the potential damage to your credit scores as a result.

You can check your credit reports periodically for record of collection accounts or you can monitor your Experian credit report at no cost. With credit monitoring, you'll be alerted if a new collection appears on your Experian credit report. And, if collection accounts are legitimately on your credit reports and causing you to have lower credit scores, you may be able to increase your scores for free using Experian Boost .