How To Dispute Your Debt and Win Against Collectors & Creditors

How to Dispute a Debt

Debt collectors rely on an array of information sources in their attempts to collect. To successfully dispute their claim(s), the consumer must be methodical and thorough.

“The first step,” says Michael Cummins, finance director for InsuranceGeek, “is to gather all of your information and evidence related to the debt. This includes any letters or documentation you’ve received from the creditor, as well as proof that the debt is not yours. If you have any witnesses who can testify to the fact that you don’t owe the debt, you should also gather their testimony.”

Luckily, seeing to the details is not rocket science. Here’s what you do:

  • Do not discuss the debt with anyone who calls, texts, emails or otherwise contacts you. Saying the wrong thing can work against you.
  • Get the collector’s info, meaning name, address and phone number. Collectors who won’t provide information are oftentimes scammers.
  • During the first phone call or within five days, you are legally entitled to the details of the alleged debt: amount, current owner of the debt, information necessary to contact the original creditor. Make a note of that if it doesn’t come in five days.
  • Immediately request a copy of your credit report from the three major reporting agencies (Experian, Equifax, TransUnion). Credit agencies are obligated, under the Fair Credit Reporting Act (FCRA), to provide you information regarding your file and credit score.
  • Comb through each report to identify errors.
  • Complete a credit bureau dispute form.
  • Print your credit report, highlighting errors.
  • Submit your dispute to the credit agency, by uploading or sending via certified mail (return receipt requested).

Taking these steps will begin the process of eliminating the erroneous claim against you. But there’s more to do.

Reporting Limit vs. Statute of Limitations

You need to be aware of two distinct dates when it comes to collection accounts: the reporting limit and the statute of limitations.

Reporting Limit

The Fair Credit Reporting Act (FCRA) sets the reporting limit on collection accounts and is equal to seven years from the date of last activity, or DLA. Most accounts are charged off as bad debt after six months of missed payments. Therefore, you can expect to see the collections fall off your credit report seven years and six months after your last payment.

Statute of Limitations

The statute of limitations on debt varies from state to state. It can be as few as three years or as many as six (or longer for some types of debt). When the statute of limitations has passed on a debt, it is referred to as “time-barred.”

While a debt collector can continue to contact you unless you tell them to stop, they cannot legally sue you to obtain a judgment once the statute of limitations has passed. The debt may still be listed on your credit report after the statute of limitations has passed if the reporting limit hasn’t.

An underhanded debt collection agency may attempt to coerce you into paying by listing a more recent date on the account. This is known as re-aging and is illegal under the FDCPA and the FCRA.

If you try to set up a payment plan, you could open yourself up to a lawsuit by re-starting the time creditors legally have to collect. If you’re not paying the creditor who currently owns the debt, the account remains as an unpaid collection.

Video

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.

Can paying off collections raise your credit score?

In the past, paid collections on your credit report were treated the same way as unpaid collections. However, FICO has updated its credit scoring to ignore paid collection accounts. Similarly, VantageScore has recently updated its algorithm to ignore paid collections of all types.

With these new updates to the credit scoring models, paying off a collection does now help your credit score. However, since it takes time for new credit scoring models to be rolled out in financial institutions, it may take time for you to see a result when applying for credit.

FICO 9 & VantageScore 4.0

You can always ask potential creditors which credit scores they use. If it’s FICO 9 or VantageScore 4.0, you should be able to take advantage of the lenient calculation of paid collections.

It’s still important to be careful before you decide to pay off a collection account if you still owe it.

Debt buyers will attempt to collect on debts that you don’t legally owe anymore, so it’s important to have them verify the debt before you take action. Also, consider your state’s statute of limitations, which we’ll discuss shortly.

How Collection Accounts Hurt Your Credit Score

FICO scores are detailed assessments of your financial reliability. They consist of an amalgamation of several pieces of data. FICO categorizes this data into five types: amounts owed (30%), new credit (10%), length of credit history (15%), credit mix (10%), and payment history (35%).

Amounts Owed

It’s not necessarily a bad thing to be in debt if you’re keeping up with repayments. The most important thing is not to be overextended so that you can reliably meet your repayment obligations.

You should be aware of your credit utilization rate: the lower this is, the better. Your rate is the total amount of money you owe divided by your total credit limit. So, if you owe $10,000 and the credit limit of all your cards combined is $20,000, then your credit utilization rate will be 50%. Generally, it’s a good idea to keep your credit utilization rate below 30%.

New Credit

The more accounts you open in a short period of time, the riskier you’ll seem to lenders. New accounts will lower your average account age, which can damage your score. Also, when you apply for a new loan or credit account, lenders run hard inquiries on your credit report—this negatively affects your FICO score, too.

Length of Credit History

In general, the longer you’ve been using credit, the better—as long as your credit history shows prompt payments rather than delinquencies.

Credit Mix

This is a calculation based on the different types of credit you use: credit card accounts, mortgages, retail store cards, auto loans, student loans, etc. Generally, having a variety of lines of credit and keeping up repayments on all of them gives a good impression to lenders and raises your credit score.

Payment History

Your track record of repayments makes up 35% of your credit score—it’s the most important factor. Having accounts in collections will negatively affect this part of your score. The amount by which a collections account will drag your score down depends on how high your score was to begin with.

A score in the 700s will be much more negatively affected by a collections account than one in the 500s. The damage to your score also depends on which scoring model you consult—some newer scoring models don’t include collections accounts that were eventually paid off in the score calculation.

3. Choose a Plan of Action

Here are three actions you can take to attempt to remove collection accounts listed on your report.

1. Dispute Inaccurate or Incomplete Collection Accounts

If you have inaccurate or incomplete collection accounts on your credit report, the Fair Credit Reporting Act gives you the power to dispute this information directly with the credit bureaus or creditor. You can send a dispute using the dispute form on each credit bureau’s website. The Federal Trade Commission has sample dispute letters on its website if you need help crafting one.

After you submit your dispute, a credit reporting company has 30 days to investigate your claim. If the credit bureau finds the provided information correct, the collection account will be removed from your report. However, if it finds that the company reporting the information was correct, the collection account will stay on your report for up to seven years.

2. Ask for a Goodwill Deletion

If you have a paid collection listed on your report, you can simply ask the debt collector or original collector to remove the collection. This usually involves sending the debt collector or collection agency a goodwill deletion letter explaining your mistake, asking for its forgiveness and showing them how your payment history has improved.

With this option, there’s no guarantee your collection will be removed from your credit report, but it’s worth a shot. If the account is removed, it may help you qualify for better terms on personal loans, mortgages and credit cards.

3. Wait Until It Falls Off

When the debt in question is legitimate and you can’t convince the debt collector to delete it from your report, your only remaining option is to wait. After seven years from the date the account first became delinquent, the collection should fall off of your credit report.

Although this means the collection will continue to impact your credit score; its impact will lessen as time passes.

Ask for a Goodwill Deletion

It may be a long shot, especially with collection agencies, but a goodwill deletion request is another option for having debt collections removed from your credit report. A goodwill letter works with accounts that you’ve already paid. In the letter, you essentially ask the collector to show some mercy, perhaps because you fell on hard times after a major life change, and remove the collection from your credit report.

Frequently Asked Questions

What is a collection on your credit reports?

A collection account is created when a debt you’ve failed to repay is transferred to a collection agency. You’re still on the hook for paying the debt once it’s sold, but you typically have to pay the collection agency instead of the original creditor.

Debts aren’t usually turned over to collections the moment you make a late payment, but the time between your first missed payment and the transfer can vary. It may take several months, it may happen immediately, or it may never happen at all, depending on the creditor.

Once the debt has been turned over to collections, it’s generally reported to the credit bureaus. It’ll then appear on your credit reports and, as a result, damage your credit scores until it’s removed.

Can you remove a collection from your credit reports without paying?

Technically, the answer is yes. It’s unlikely, though.

There are a few ways you could try. They’re essentially the same steps you’d take to request a paid account be removed:

  • File a dispute with the credit bureau and/or ask the collection agency to validate the debt if you believe the collection account is inaccurate.
  • If the account is legitimate but you’ve paid some of it and/or have exhibited responsible behavior otherwise, send the collection agency a goodwill letter requesting the unpaid collection be removed from your reports.

If the above routes fail, you’re probably out of luck. And remember that even if a collection account is removed from your credit reports, you’re still liable for the debt.

1. Do Your Research & Check All Credit Reports

To get details on your collection account, review all of your credit reports. You can do this by visiting AnnualCreditReport.com. Normally, you can only get one free copy of each report annually. However, due to the Covid-19 pandemic, you can check your reports from all three credit bureaus for free weekly until April 20, 2022.

Your credit report should list whether the collection is paid or unpaid, the balance you owe (if any) and the date of the account’s delinquency. If you don’t know who the original creditor is and it’s not listed on your report, ask the collection agency to give you that information.

Afterward, compare the collection details listed on the credit report against your own records for the reported account. If you haven’t kept any records, log into the account listed to view your payment history with the original creditor.

How long can a debt collector pursue an old debt?

Each state has a statute of limitations about how long a debt collector can pursue old debt. For most states, this ranges between four and six years. These statutes govern the amount of time that a debt collector can sue you, but there is no limit to how long a collector has to try and collect on a debt. If you are being contacted about a debt that you believe is not yours or is outside the statute of limitations, do not claim the debt; instead, ask the company to validate that the debt is yours.

Should I Pay Debt Collectors or the Original Creditor?

If the debt is legitimately yours, knowing whom to pay can be confusing. Debt collection agency? Original creditor? Debt that has slipped into arrears often changes hands, sometimes more than once.

There are, essentially, three scenarios when a debt is unpaid and the consumer could be confused about who is being dealt with and who is getting paid.

  1. A creditor may have an in-house collection division. In this case, you are still in debt to the original creditor and that is who gets paid.
  2. Sometimes the creditor will hire a collection agency to chase the money for them. Ask the debt collector if they own the debt. If not, you still might be able to negotiate with the original creditor.
  3. Often the last straw, the original creditor might sell the debt to a collection agency. In this case, the debt collector owns the debt, so any payment is made to the collection agency. (This amount, too, may be negotiable.)

How to Get Collections off Your Credit Report

Getting collection activity off your credit report can help you accomplish credit goals like improving your score or qualifying for certain types of loans. Though there’s no one way to remove collections or guarantee you’ll get the exact outcome you are hoping for, it’s still good to know how to remove this information from your credit report whenever possible.

The good news is that it’s possible to remove this derogatory information, so here’s exactly what you need to know about removing collections from your credit report.

How Long Does A Collection Account Stay on Your Credit Reports?

The fact is that a collection account will not be removed from your credit report just because the account has been settled or paid.

Even after a collection account has been paid, the credit bureaus are still legally allowed to continue to report the collection for up to 7 years from the date of default on the original account, thanks to the Fair Credit Reporting Act.

To put it another way, a collection account can remain on your credit reports for up to seven years from the date the original debt became 180 days past due, regardless of whether the account has a $0 balance.

How many points will my credit score increase when I pay off collections?

Your credit score may or may not improve when you pay off a debt that's in collections. Some newer models of scoring take this into account, but older ones don't. You can monitor your score before and after paying your debt to see if it improves.

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.

Still have questions about credit reports and scores?

Find resources to help you better understand them, learn how to correct errors, and improve your credit record over time.

View our resources

Meet the Experts

’s staff of editorial writers have spent hundreds of hours conducting research, interviewing industry experts, and reviewing the products and services out there to help inform and educate our readers.

Learn More About Our Team

Tags

Leave a Reply

Your email address will not be published.