When you miss a monthly payment and then default on the loan, your creditor sells your debt to a debt collection agency. Since your debt is now in collections, the credit bureaus receive your default information, which lowers your credit score.
Removing these collections can be difficult if the information is accurate. Debt in collection lowers your chances of getting a loan in the future. A lender uses your credit score to determine how much interest to charge on loan.
A credit scoring model is used to calculate the credit score. If the lender uses the FICO Score 9 model, any late payments made in full will not appear on your credit report. As a result, your credit score will be high. If the lender uses the earlier versions of the model, they will see the collection accounts, which will influence their decision to give you a loan.
Dispute An Error
Get a free copy of your credit report and find out if there are any errors in it. Write a letter to your creditor and the credit bureau to dispute these errors. If you are right, the credit bureau will inform you of the change and send a new copy of your credit report. We suggest sending the dispute letter to the following credit bureaus: Experian, Equifax, and TransUnion. You can visit the official websites of these credited services to find the address to write a formal letter to, dispute letters, dispute form, and additional documents.
Ask For A “Goodwill Deletion”
If a collection agency buys your account, ask the current creditor if there’s any way the debt can be removed from the credit report. Write a letter explaining your financial situation. While the debt will stay in place, the collections will no longer appear on the credit report.
Write A “Pay for Delete” Letter
A “Pay for Delete” letter is a great negotiation tool that allows you to bargain with the creditor. It states that you are ready to make the payment in exchange for clearing up the error on your credit report. You need to submit the following documents along with the letter:
- Your ID and contact information.
- Account numbers with the collections.
- The total amount you owe.
Wait For The Error To Disappear
It takes seven years for a negative error to exit from your credit report. If the above methods fail, all you will have left is to wait it out. In the meantime, you can try to make the payments and improve your credit score the old-fashioned way. If you have trouble writing a letter or filing a dispute, you can get help from a credit repair company.
While they won’t guarantee the removal of any errors, they can help you write the dispute letters and handle everything else on your behalf. Make sure to choose a well-known credit repair company to handle your collections, or you might end up with costly fees over the debt.