Sometimes, a downturn in your credit score is simply the result of an error on your credit report. But if you’re behind on your bills, you might see your score tumble due to delinquent accounts or having debt in collections.
Having debt in collections can cause major damage to your credit score. It can even create costly legal issues. Here’s how to find out if you have a debt in collections — and how to address the issue.
What Is a Collection?
A collection results from a debt not being paid on time. Usually, the debt is significantly delinquent — more than 180 days late. When a debt goes into collections, the original lender of credit assigns or sells the debt to a debt collector, such as a collection agency.
The debt collector — the person or company that collects debts owed — then tries to collect the debt from the borrower.
How Can I Learn If I Have Debt in Collections?
To find out if you have debt in collections, take these steps:
1. Check Your Credit Report
The easiest way to find out if you have a debt in collections is to pull a copy of your annual free credit report. Most collection agencies report to at least one of the three major credit bureaus — Experian, Equifax and TransUnion.
The collection agency might only report to one of the credit bureaus, so you want to cover all your bases by checking all three credit reports. Any account that is in collections will be marked with a “collection” status.
2. Find Out If a Credit Agency Tried to Contact You
It might be difficult to learn which collection agency has your debt, but debt collectors are notorious for aggressively hunting down people, and it’s likely they have already tried to contact you.
Check your voicemail and mailbox to see if you have any messages or letters. If you have any missed calls from unknown numbers, search the number online to see if it came from a collector.
3. Ask the Original Creditors
If you still aren’t sure which collection agency has your debt, call the initial creditor to find out the agency’s contact information. The initial creditor is the business where you originally opened the account.
The original creditor might not be able to take any payments once the debt goes into collections, and it might not have any information on the status of the debt. That means you’ll have to deal with the debt collector directly.
4. Get Contact Info From Your Credit Report
Once you’ve found who your debt is with, you’ll need to contact the credit agency. Your credit report might contain the name and contact information of the agency trying to collect the debt. Check the reports from all three credit reporting agencies in case there is conflicting or missing information on any of your credit reports.
What Should I Do If I Have Debt in Collections?
Contact the debt collector and ask for a written validation notice of the debt. By law, that notice must be sent within five days of the request and needs to include:
- The name of the creditor
- The amount owed
- Information on how you can dispute the debt or seek verification of the debt
Once you have received the validation notice and verified the debt and amount owed, you need to resolve the matter. Here’s what to do if you have debt in collections:
1. Pay the Debt in Full
Some consumers choose to pay the debt in full or make monthly payments on the debt. The more a consumer pays, the more the debt collector makes. So the collector will always push hard for you to pay in full. In fact, the collector might even use intimidation practices or lie to you, which is illegal.
2. Negotiate the Debt
You can save a lot of money — and even have the item removed from your credit report — by negotiating the debt.
Some debt collectors purchase debts at a discount and then attempt to make a profit by collecting the full amount owed. Other collectors are contracted to collect on the debt and make a commission on how much money they collect.
Sometimes, the original creditor requires the collection agency to take no less than 100 percent of the debt. But usually, you can negotiate the amount owed. You can also try to negotiate a “pay for delete” deal — an agreement to pay all or a percentage of the amount owed if the debt collector agrees to remove the entry from your credit report. You want the entry removed, not just marked as “collection paid.”
It might take several rounds of negotiation to reach a settlement with a debt collector. Once you have reached an agreement, ask for the details in writing before making any payments. All correspondence with the debt collector should be done in writing and sent via certified mail with a return receipt request. Alternatively, you can ask for the agreement in writing to be sent via email.
Once you have paid the collection, check your credit reports to make sure the collector has held up its end of the deal.
3. Dispute the Debt
If you believe the collections account reported on your credit reports is false or outdated, you can file a dispute with the credit bureaus. For example, if the debt in collections is more than seven years old from the date of delinquency, the debt must be removed from your credit report.
4. Know Your Rights
Debt collectors are restricted from engaging in certain behaviors and they must follow strict guidelines. Some of the practices that the Federal Trade Commission categorizes as off-limits for debt collectors are:
- Unfair practices
- Making false statements
- Threatening certain legal actions
Always know your consumer rights so you can protect yourself.