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One-Third of Americans Have a Debt in Collections — What to Do If You’re One of Them

Credit Card Basics, Credit Cards
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One-third of Americans have a debt in collections

More than one-third of Americans have a debt in collections, according to an Urban Institute study. A debt in collections can damage your credit score. This can keep you from obtaining new credit at reasonable rates, getting utilities or a cell phone without a deposit, or possibly landing a new job. If you have a debt in collections, here’s what you need to do.

1. Verify that the account in collections is yours and accurate.

Just because the credit bureau says something is true doesn’t mean it is. Plenty of errors can occur on credit reports. Figure out what your account in collections pertains to. It may be correct, but it could be a mistake on the part of the lender or agency.

You’re likely getting calls from the collection agency, but it may be helpful to pull all three of your credit reports to see why. You can do this at AnnualCreditReport.com for free each year. See if the collection is reported on one, two or all three reports, and verify that it’s accurate.

1(a). Dispute any erroneous entries.

If you find that the debt in collection isn’t yours or has been misreported, you need to dispute it. Gather any evidence you have that shows you aren’t delinquent on payments and submit a claim to the credit agencies that contains the discrepancies. You can also talk to the furnisher who reported the mistake to the credit bureaus in the first place. If the collection account information was false, the item will be removed from your reports and will no longer affect your score after you’ve adequately proved its invalidity.

2. Pay it off as soon as possible.

If the collections record is accurate, you will need to pay off the account in order to lessen its negative impact. A debt in collection stays on your credit report for a total of seven years and 180 days after you became delinquent. While a paid account won’t fall off your credit report any quicker, it will show it as being paid on your report. According to Equifax, lenders may see that and reward you for good payment behavior.

» MORE: How to pay off debt

3. Wait.

As noted, a paid or unpaid account in collections stays on your credit report for seven years and 180 days after you become delinquent. If the account in collections belongs to you, you’ll simply have to wait until the collection falls off your report. There’s good news, though! The longer a collection remains on your report, the less it affects your credit score. So while it will still be a blemish on your report, lenders who check your credit shouldn’t see a poor score after awhile, provided there are no other negative items.

Bottom line: If you have a debt in collections, you’re not alone — there are 77 million Americans with you. The important thing is that you take steps to alleviate its effects on your credit score. Start by making sure the account in collections is reported accurately and belongs to you — if it’s incorrect, dispute it with the bureaus and/or furnisher. Then pay it off as soon as possible to show potential lenders good payment behavior. After that, all you need to do is be patient and wait until the collection account falls off.

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