How to Handle a Collections Account

August 24, 2016

Do you have unpaid debt lingering on your credit card? Has it been a while since you’ve paid your last bill?

Do you have unpaid debt lingering on your credit card? Has it been a while since you’ve paid your last bill? Are you getting phone calls from numbers that you’re not familiar with? If you’ve answered yes to any of these questions, chances are you’re at risk of having to deal with a collection agency.

After six months of not completing payments on anything from a phone bill to a credit card, a creditor can close your account and sell it to a collection agency. Once it’s sold, a collections account opens up on your credit report – forcing you to deal with the original debt plus added fees and interest rates. This can stay on your report for up to seven years, and it can lower your score by 20-50 points.

If you see a number “9” next to one of the lines on your credit report, this is the symbol for an account that’s been closed, and you need to take immediate action. Your first step to handling this situation is to ask yourself one question: should you pay off the collection or should you dispute it?

Option 1: Pay Off the Collection

If you know that the closed account is legitimate because you haven’t been paying your debts, work with the original creditor to sort out a deal. If you set up an agreement with them where you make partial payments, you’ll bypass having to deal with a credit bureau and might get that pesky 9 removed from your report. If you can negotiate a deal, it’s crucial that you pay back the collector and work on rebuilding your credit. However, if the original creditor refuses to make a deal, you can make an attempt to dispute the situation to the credit bureau who will review and investigate the situation. It is extremely important to have all compromises in writing – debt collecting is a money hungry business, and because of this it’s a great idea to keep a physical copy of any agreements made.

Option 2: Dispute

One in four credit reports have errors on them, and it’s your legal right to question anything that you believe is false. If you know that you don’t owe any money but you see that one of your accounts has been closed, call the credit bureau and ask them to validate the debt. The credit bureau has 30 days to examine your information with the creditors involved. In many cases the credit bureau will fail to prove you wrong, either because you did in fact pay off your debt or they don’t have time to pursue your case. Regardless of the outcome, be firm with the updates on your status – your credit report isn’t something to be played with.

If you find yourself stuck in this financial chaos don’t forget to do these two things: evaluate your options and take full control of the situation. Not only does having a collections account hurt your credit score, often times it means that you’ll be unable to apply for loans in the future. In order to prevent this from happening, prioritize paying back debt that’s in danger of being sold to collections.

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