If you have a collections account on credit report, the first thing you should do is read our article about addressing credit collections head on and attempting to negotiate for a letter of deletion.
The truth of the matter, though, is that sometimes you will be unable to negotiate for a letter of deletion. If this is the case, you have four options:
Collections Account on Credit Report: Option #1
You could immediately pay the collections account. The pros of this are pretty straightforward:
- As long as you take all the necessary steps and learn how to fix credit, your credit score will be only minimally affected after just two years.
- If the collections account appeared on your credit report in the past few months, your credit score is suffering regardless, so this option will not significantly lengthen the amount of time your score suffers from the slip-up.
- You won’t be sued for failing to pay the debt.
- Your agreement with the creditor will be satisfied in full, so those harassing phone calls will stop!
Now let’s take a look at the cons:
- Your credit score will probably take a hit. Remember that paying a bill in collections often causes a person’s score to drop.
- The item will remain on your credit report for seven years. You will have no leverage to negotiate for a letter of deletion.
If the collections account on credit report is relatively new, and you don’t plan on making a large purchase in the next two years, this might be your best option. Be sure to pay the debt instead of making payments. Remember that each time you make a payment on a collections account, your score will take a hit.
If you choose this option, try to negotiate a smaller payment. A lot of creditors will settle for cents on the dollar, especially if you have a bad credit score and they think you might enter bankruptcy. After all, they would rather receive something than nothing!
Here’s another tip you might want to consider: In some cases, you might be better served by asking the creditor not to report the payment to the credit bureaus. I know this seems counter-intuitive, so be sure to read Chapter 6 of 7 Steps to a 720 Credit Score before taking action. If the collections account on credit report is old and you have not made payments for the past two years, the payment might hurt your score. Asking the creditor not to report the payment could preserve your existing score.