Can Collection Accounts Really be Removed from My Credit Reports?

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Can Collection Accounts Really be Removed from My Credit Reports?

In my previous article, Will Paying Collections Help My Credit Scores?, I discussed the common misconception that paying a collection account will raise your credit scores. It is true that paying a collection account probably will not raise your credit scores and, in some cases, may even lower your scores if recent activity is reported on the account due to your payment. However, there is another credit myth which I would like to debunk today and that is the misconception that a collection account cannot be legally removed from your credit report. The statement that a collection account cannot legally be removed from your credit report is simply untrue. When a collection account is deleted from your credit report the result is almost always a credit score increase - great news for the consumer! There are several possible ways that collection accounts can be deleted from your credit report. Let's discuss a few of them:

Removal by Dispute - 

Have you checked your credit report lately? Chances are that, if you did so, you found errors and inaccuracies. In fact, a recent study released by the Federal Trade Commission found that 40 million Americans had errors on their credit reports. 

According to the Fair Credit Reporting Act (FCRA) you have the right to dispute any errors, mistakes, or inaccuracies with the credit reporting agencies - Equifax, Trans Union, and Experian. If any of the data is incorrect on an account (i.e. the balance, the date of first delinquency, the date of last activity, the date opened, the date of default, the date reported, account notations, etc.) then you have the right to dispute it. Furthermore, you are even allowed to dispute erroneous accounts with creditors and collection agencies directly.

Pay for Deletion -

It is possible for you to make an arrangement with a creditor or collection agency to pay an account in exchange for the deletion of the account from your credit report. You should know that it is extremely difficult to get a creditor or collection agency to agree to these terms. Some companies will reject a pay for deletion offer out right. However, payment for deletion is possible and it is 100% legal.

There is nothing in the Fair Credit Reporting Act which compels a creditor or collection agency to report an account to the credit bureaus. The reporting of accounts is 100% voluntary. Even though it is not illegal for an account to be paid for deletion, the act is frowned upon by the credit bureaus and most of the agreements that the bureaus have with collection agencies states that the collection agencies cannot engage in pay for deletion settlements.

Finally, if you do get a creditor or collection agency to agree to a pay for deletion arrangement you will likely be required to pay 100% of the debt. As with any debt negotiation, it is always important to get agreements sent to you in writing since "he said, she said" will not hold up if a dispute arises later.

Goodwill Deletion - 

You can request for a creditor or collection agency to grant you a goodwill deletion after an account has been paid. It is a long shot to have a goodwill deletion request honored; however, it certainly cannot hurt you to ask.

These are a few of the ways that a collection account can be removed from your credit reports. You have the right to try to employ some of these strategies on your own, though doing so will likely be time consuming and very difficult. You also have the right to hire a reputable credit restoration company to assist you. If you would like to speak with a HOPE Credit Expert regarding your credit report please give us a call at 704-499-9696 or click here to schedule a no-obligation credit analysis today.

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Will Paying Collections Help My Credit Scores?

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Will Paying Collections Help My Credit Scores?

Paying collection accounts is usually the first place people start when deciding to try to fix damaged credit reports. However, the idea that paying off a collection account will boost a consumer's credit scores is, unfortunately, usually very wrong.

FICO's credit scoring models (the brand currently used by most lenders) were designed to help lenders predict the likelihood of a borrower going 90+ days past due on a loan within the next 2 years. If a borrower is likely to go 90+ days delinquent on an account within the next 2 years then a lender will probably consider the borrower to be a bad credit risk. When you pay off an outstanding collection account, even if a zero balance is reported to the credit bureaus, that does not erase the fact that the delinquency occurred in the first place. Therefore, FICO scoring models will still  typically score you as a bad credit risk, even after you have paid off collection accounts.

It is the occurrence of the delinquency (aka the late payment) which lowers the consumer's FICO scores, not the balance on the collection account. The fact that the delinquency happened is not erased when a collection account is paid. To further illustrate this point, let me ask you a question. Would a $1,000 medical collection, a $100 medical collection, or a $0 medical collection lower your credit scores more (assuming they all were added to your credit reports at the same time)? If you guessed that the 3 collection accounts would likely have roughly the same impact upon your credit scores then you are 100% correct.

Additionally, paying a collection account could accidentally harm your credit scores further due to a deficiency within some older credit reporting systems which might penalize you for "recent activity" on a collection account whenever a payment is made.  Paying an older collection account, which hasn't reported any activity in several years, might make the collection account appear to be more recent in the eyes of these older FICO scoring models and could therefore potentially result in a drop in credit scores. The reason this occurs is because the credit bureaus will update the "date reported" field when the collection agency reports the new balance ($0 if you paid or settled the debt) and when the "date reported" becomes more recent it might damage your FICO credit scores.

However, you do want to exercise caution when it comes to collections since simply ignoring these obligations could come back to bite you as well. If you have a collection account on your report which you know stems from a real financial obligation and you know that the balance is correct, then it may still be in your best interest to try to settle the debt. Unpaid debt can potentially result in being sued, wage garnishment, and judgments.

Remember, if you owe a collection account, you can always try to settle it for a lesser amount and you can even hire a reputable professional to assist you. Paying 100% of the collection will probably not affect your credit scores any more positively than paying a 5o% settlement in full since the account is already derogatory. Neither scenario removes the collection account from your report, so do yourself a big favor and save yourself some money if you choose to settle any collection accounts. Finally, it is very important to always, always, ALWAYS get proof of the settlement and the satisfaction of the account in writing from the collection agency.

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Incorrect Personal Data on Credit Report

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Incorrect Personal Data on Credit Report

Errors occur on credit reports. This is a fact, and it's not really breaking news to anyone at this point either. In fact, the Federal Trade Commission released a study in 2013 which suggests that somewhere between 20 million and 42 million consumers have errors on their credit reports (depending upon the FTC's variable definition of an error).

Consumers have the right to accurate credit reports, a right which is afforded to them under the Fair Credit Reporting Act (FCRA). According to the FCRA, any information which is included on a consumer's credit report needs to be error-free and this includes the personal data which is listed on a consumer's credit report as well.

The Personal Data Section

Not only do credit reports contain information regarding your debts, they also contain a large amount of your personal information as well. The personal data section of a consumer's credit report contains information such as the consumer's name, her aliases (AKAs), her maiden name, her social security number, her date of birth, her address, her previous addresses, and her employer.

Personal data is often referred to as "cosmetic" credit report information. Yes, the information is listed on a consumer's credit report, but it has no influence on a consumer's credit scores. The reason why personal data is not used to calculate credit scores is because it is inconsistent (often provided by the consumer on credit applications) and is not a reliable indicator of credit risk.

How to Check for Personal Data Errors

Thanks to the Fair and Accurate Credit Transactions Act (FACTA) which amended the FCRA in 2003, consumers have the right to access a free copy of their 3 credit reports every year via www.annualcreditreport.com. The best way to ensure that your credit reports remain error free is to check your credit reports regularly. Ultimately, it is up to the consumer and no one else to verify that the information appearing upon her credit reports remains accurate.

NOTE: Consumers do not have free annual access to their credit scores thanks to FACTA. That is a myth. If you wish to pull your credit scores online it is best to compare the different credit score offers ahead of time. CLICK HERE to check out some great credit score and credit monitoring reviews.

Why Incorrect Personal Data Can Be Problematic

As mentioned above, credit report errors in the personal data section of a consumer's credit report are cosmetic. These errors will not help or harm a consumer's credit scores. However, that does not mean that incorrect personal data errors should be ignored. In fact, personal data errors could indicate the possibility of attempted (or successful) identity theft. Furthermore, mistakes in the personal data section of a consumer's credit report could also indicate the possibility of more serious credit errors made by the credit bureaus themselves or by a creditor (or creditors) reporting the data.

How to Correct Incorrect Personal Data

Thanks to the Fair Credit Reporting Act (FCRA), consumers have the right to dispute any information on their credit reports which is believed to be inaccurate. Whether the information is cosmetic or otherwise, if it is listed on a consumer's credit report then it is required to be accurate. When disputing inaccurate personal information (i.e. incorrect name spellings, incorrect dates of birth, incorrect social security numbers, etc.) it is helpful to provide supporting documentation to help prove how the information in question should be reported. As with any other type of dispute, the credit bureaus are required to complete their investigation within 30 days or less in most cases. 

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Why You Shouldn't Be Too Excited about the New FICO 9 Scoring System...Yet

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Why You Shouldn't Be Too Excited about the New FICO 9 Scoring System...Yet

Last week, on August 7th to be precise, a highly anticipated announcement was made regarding the upcoming release of the new FICO 9 credit scoring system. FICO Score 9 will become commercially available in the fall of 2014 and will feature some pretty radical and exciting changes in the way that the scoring system calculates consumers' credit scores. The new scoring system features 12 scoring models which will be installed on the mainframes of the 3 major credit reporting agencies - Equifax, Trans Union, and Experian.

The Good News

In Fair Isaac Corporation's press release regarding FICO Score 9 it was revealed that there will be 2 major changes in the way the new credit score system treats certain types of collection accounts. First, paid collections will be ignored and bypassed. The bypassing of paid collections is a departure from previous versions of FICO scoring models which are currently in use by lenders today.

Under previous versions of FICO, paying or settling a collection account usually has no positive impact upon a consumer's credit scores whatsoever. The design objective of FICO scores, in other words what FICO scores are created to do,  is to predict the likelihood that a consumer will become 90 days past due on any account within the next 24 months. The reason that paying collections typically does nothing to help a consumer's FICO scores is due to the fact that current versions of FICO are built to be concerned with the fact that a collection account occurred in the first place. Whether a collection account has a $0 balance or a balance greater than $0, the negative score impact is likely the same. Bypassing paid collection accounts by FICO Score 9 will be a major change could cause credit score increases for many consumers.

The second major change being introduced with FICO Score 9 is how the scoring system treats medical collection accounts. Under previous versions of FICO, medical collections were just as damaging to a consumer's credit scores as non-medical collections. However, according to Fair Isaac Corporation, FICO Score  9 "...will help ensure that medical collections have a lower impact on the score." In fact, consumers whose only derogatory accounts are medical collections could expect to see a credit score increase of around 25 points.

Why You Shouldn't Be Too Excited Yet

FICO Score 9, scheduled to become commercially available in the fall of 2014, promises some changes which consumers and loan officers are excited to see. Unfortunately, the new scoring model will likely not be adopted by lenders for a very long time.

It is timely and expensive for lenders to upgrade to a new credit scoring model. Lenders do not change credit scoring models because a new one becomes commercially available either. It's not like lenders will line up around the block to purchase the new FICO Score 9 as if it were the hottest new smart phone release from Apple. Instead, lenders make a change because their own extensive research proves that the newer scoring model is more effective at accurately predicting risk than the previous version they have been using. Even then the change is likely to be slow because, after all, their current scoring model isn't broken, it just is less effective.

The previous version of FICO to be released, FICO 8, is only now being used by a majority of lenders. FICO 8 was released in 2009. In the mortgage industry where the credit scoring version choice is controlled by Fannie Mae and Freddie Mac, the version released prior to FICO 8 is still in use. It will likely be a very, very long time before the new FICO 9 Score is ever seen on a Residential Mortgage Credit Report (RMCR).

Additionally, there is no guarantee that the new FICO 9 Score will be adopted by lenders at all. Yes, FICO has been the undisputed leader in the credit scoring market for decades and they likely will remain the leader in the future. However, FICO is not without competition. VantageScore is the credit scoring product offered by the credit reporting agencies - Equifax, Trans Union, and Experian. While the vast majority of lenders continue to use FICO credit scoring models to calculate risk, VantageScore has been gaining ground little by little since its unveiling in 2006. 

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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