Do you have collections showing on your credit report?  Are they dragging your credit score down?  Even if the collections are legitimate, there are steps you can take that will minimize their impact on your credit score, or even get them removed altogether.

First things first, you need to identify who is handling the collection account.  This is normally not the same organization you originally owed the debt to, but a third party.  These third party groups purchase blocks of collection accounts for pennies on the dollar, and then attempt to collect on them.  This can work to your advantage.

On your credit report, you should be able to gather some important information.  You will find the contact information for the collection agency.  This is either under their name on the actual collection line item inside your report, or it is at the end of the report.  Depends on the report.  You will also find the dollar amount originally owed.

Once you have the dollar amount owed and contact information for the collection agency, give them a call.  Your game plan is to get this item removed.  It’s going to cost you some money, but if you do it properly, your collection will be removed.  When you call the collection agency, you want to offer them a portion of the actual debt.  They bought this debt for less than face value, many times you can settle for about half of what is owed.  That is only half of the battle, though.

In addition to agreeing on a dollar amount to settle the debt, you also want an agreement from them to remove the item from your credit report.  You want them to agree to this before you send your payment in.  You also want this agreed to in writing.  Before you send your payment in.  If you don’t make this specific agreement, they will normally just report to the credit bureaus that your collection account is paid.  You don’t want it marked paid or settled when trying to repair your credit, you want it removed.

These collection agencies will not always be willing to remove the item from your credit report.  When you run into this situation, you have a couple of choices.  If you are interested in credit repair for the long haul, it is still best to get the account settled and paid.  If they refuse to remove the item in question, negotiate on the payoff a little harder.  Remember, they bought this collection in a large block of other collections for a fraction of what you owe on it. 

If you are looking to repair your credit for the short term, and I see this a lot in home loan applications, you should not pay your collection off if they will not remove it from your credit report.  This is especially true for older collections.  In the long run, paying these collections off will help your credit, but in the short term, it will not.  If you have a collection that is 4 years old, it is impacting your credit score less than if you were to pay it off.  Huh?  Let me explain.

Credit scoring weights the most recent 12 months of credit history heaviest.  The older the item on your credit report, the less weight it carries.  If you have a collection that reported 4 years ago and you pay it off, your credit will suffer short term.  The reason is that the collection agency will report to the credit bureaus that this collection has been paid.  It sounds like a good thing, but it is not.  It is a new item, very recent and weighted heavily.  Even though you are taking care of a debt, it is still a collection being paid.  The credit bureaus will ding your score because this is a new item being reported associated with a collection account.  Your credit will actually be worse than if you just left it alone!

With that being said, you should still pay it at some point, and often times this can be done through escrow at the closing on home loans.  This way, you improve your credit report for the long haul, while not shooting yourself in the foot short term (since you have already obtained the loan you are after when you pay this item).

Hopefully this has been helpful, check back in often for more great articles!