Did you know that each time you make a payment on a credit collections account, your credit score could be damaged?
It’s shocking but true.
When you are 30 days late on a bill, a creditor will report a late payment to the credit bureaus. This happens again at 60 days and again at 90 days. Once you are 120 days late, the bill will typically be turned over to a credit collections company. Each late payment causes your score to drop, and the collection causes it to drop even more.
It would make sense that once you paid the credit collections, your score would increase. But this isn’t the way the credit scoring system works.
A collection notice will stay on your credit report for seven years from the date of last activity. So each payment on a collection account renews the seven-year time-frame and causes your score to drop again
If you have credit collections, your goal is not negotiate with the creditor to stop this from happening. You have several options:
- Pay the balance in full in exchange for a letter of deletion. A letter of deletion is not the same thing as a letter of payment. A letter of payment is useless, but a letter of deletion actually tells the credit bureaus to remove an item from your credit report.
- Make payments in exchange for a letter of deletion upon final payment.
- If you cannot successfully negotiate for a letter of deletion, but you want to pay the balance, simply ask that the company stop reporting to the credit bureaus. This prevents your score from dropping further.
Regardless of which option you choose, you should consider negotiating to pay a smaller balance. As a reminder, a lot of creditors will allow you to settle for cents on the dollar. One of my clients was able to settle for 20 cents on the dollar!
This is a complicated subject, but removing a collection account is one of the fastest ways to increase a credit score. I suggest that you review 7 Steps to a 720 Credit Score for a complete explanation of credit collections.
Step One: Keep the proper credit card balance.
Step Two: Have the right number of credit cards.
Step Three: Make sure the credit bureaus are reporting your proper credit limit.
Step Four: Learn the difference between helpful and harmful installment loans.
Step Five: Remove high priority credit report errors.
Step Six: Address credit collections head-on.
Dear Philip,
Good Morning !
I have a ‘collection’ that has been on my credit history for more than 11 years. I currently have NOT used my credit for more than 11 years.
And, in this time frame, I have only attempted to apply for a car loan,3 years ago.I twisted the used car salesman’s arm to tell me what my credit score and it was 620. I passed up the loan.
Are you willing to give me some advise to rectify this problem ?
Thank you for reading this email.
Susan Liscano
I am remembeing you are from Alberta, Canada, though live in the United States with your family. Have a goof day, Canada Day is July 1 and December 26, yes.
May 29, 2011
Dear Mr Philip Tirone,
This is good informaation. Last year, 2010, I was paying a Cox Communications late account. It doesnt matter whose fault, the acct was in my name. When my son closed the account, I paid the balance. They sent the equipment deposit refund check {$60} to his address, his wife cshed him, told him later. It wasnt a big deal, and we all were thinking the balance was paid, the account closed. Later, she said she was receiving a bill from Cox Communicatons and couldnt locate it. Fast forward, I was injured MVA 2009, most paper work was handled for me, I actually paid two rents for my unit one month, Verizon went to $750 for July August account, tho they negotiated down amd put me on unlimited time plan. The Cox Communication went to collection, when I contacted them in early 2010, the lady said “you want a letter of deletion”. Unknowingly, I said i wanted the account paid. Reading your book earlier, I read about the “letter of deletion” and tried to contact the collection agancy. I couldnt reach the woman I spoke with in 2010 and the man said the account is reported, cant do anything. The woman when I called to pay did offer a letter of deletion. This is the only collection acct on my credit report and will be there another 6 years. Can I redo it with “health issues” as a reason for the timeframe difference. I am writing and want an actual answer, this isnt a comment on your very helpful post.
Can I get this collection account deleted somehow? It is for about $113.00.
It is a time for remembrance and thankfulness. If you and anyone in your family has devoted their lives to service in this country, thank you very much.
Sincerely,
Mrs Marissa G DiBartolo