Erica Sandberg is a freelance editor at large, reporter, and advice columnist covering all things fundamental finance. She’s been KRON-TV’s on-air money and credit expert for over 15 years, and has appeared on virtually every national news show, from Fox to CNN. She hosts Making it with Erica, a video program highlighting ways to live adventurously on any budget.
[dropcap]Q[/dropcap] “I lost my job in 2009 and fell behind on paying my bills. I was able to pay off the balances in full, but not before they had gone to collections. Even though I have paid them off, the accounts are still showing up on my credit reports and they are hurting my score. Can I get them removed because I don’t owe them any more?”
No, I’m afraid it is not possible for this unpleasant piece of information to be removed from your consumer credit file. At least right now.
According to the Fair Credit Reporting Act, most negative but accurate data will appear on a person’s report for seven years. That includes accounts that were not paid, charged off by the original creditor, and then purchased by a third party collection agency.
The collector has the right and the responsibility to report to at least one of the three credit reporting agencies (TransUnion, Equifax, and Experian) that you did have a debt with them. This way financial institutions and other businesses will have a true assessment of your complete financial history.
Credit reports and scores are essential for businesses to make objective decisions. If you were a lender, you’d certainly want to know if an applicant had repaid his debts on time and according to his contract, right? Without complete information, you’d bear unnecessary risk.
Thankfully there is good news.
First, you paid the balance off, so the account is showing up as satisfied. That’s great.
Not only is the debt not being factored into the credit utilization ratio of your FICO score any longer (that’s the category that determines how much money you owe relative to how much you can borrow) but it demonstrates your sense of responsibility.
Sure you paid it late, but you did eventually take care of the bill, and that’s what all creditors like to see.
Second, the bad mark is old. If you were a lender, you would probably care most about the most recent activity of the person seeking to borrow money from you. After all, what someone did six or seven years ago is far less relevant than what he did in the last year or so.
Finally, third: the FICO 8 factor. This is the most updated version of the FICO score and it ignores collection accounts for balances under $100. If your debt was less than that, your score isn’t being penalized at all. Not every lender is using this version yet, but some are and more will follow.
After the collection account has reached its seven-year birthday, check your credit report from to make sure it’s gone.
The date should be enough to trigger the credit reporting agencies to remove it, but in case they lag, flag it for removal using the dispute process on their websites. Mind that the clock starts ticking either when you last made a payment to the original debt or whenever it was sent to collections.
And remember – the more positive data you add to the reports, such as a lengthy pattern of using credit but paying on time and in full, the better. Concentrate on that. Then when the collection agency account is a thing of the past, all that will remain is your perfect performance.