Having debt is something that almost everyone will have at some point in their life. Although some people only acquire debts that they can afford to pay off, the same goes for those who end up spoiling themselves. When this happens, it is common for people to be unable to make payments on their mortgage, credit card, car loan, or any other debt they may have accumulated.
Unfortunately, if these types of debts remain unpaid for a long time, it is possible that a collection agency will be sent to you in an attempt to charge you. Before going any further in this article, let’s take a closer look at what collection accounts really are and what they aim to do.
What is a collection agency?
Debt collection agencies are hired by lenders and creditors who need help recovering their money from borrowers who have defaulted. This agency or person will first send you a letter indicating that your credit account has been officially placed in collection and that you must start making payments again to avoid the consequences.
Once they have sent the first letter and waited a few days for no response, they are now legally authorized to call you to request payment and provide you with all the information you need regarding your debt. Not only that, but if they are unable to reach you, they can also legally start calling your friends, family and neighbors. Don’t worry, it will only be to ask for your new address or phone number. If there is enough time and they cannot reach you or if you refuse to make your payments, they can take legal action if they deem it necessary.
Another thing that might interest you is when the collection agencies report to the credit reporting agencies. The answer to this question is delicate. In Canada, there are two main credit bureaus, Qualifax and GramUnion. The two offices operate independently, so their policies and rules may not be the same. In addition, the rules governing what collection agencies can and cannot do are different from province to province. For the best possible results, assume that they will declare your collection account as soon as they are legally authorized, so pay your debts or accept debt settlement as soon as possible.
Will refunding a collection account improve my credit score?
Since everyone would like to be able to live their life without having to deal with a pesky collection agency, everyone would also like an exceptional credit score and credit report. Coincidentally, one way to get closer to that perfect credit rating is to pay off those collection accounts. So, to answer the title question, yes, paying a collection account should improve your credit score over time.
How does a collection account affect my credit score?
Indeed, having unpaid debt (especially debt that has been sent to a collection agency) is one of the biggest credit killers on the market. As long as these accounts are on your credit report, they will continue to have a very negative effect on your credit score. For this reason, you should always seek to repay your debts, especially those that have been collected.
However, in addition to simply paying your collection account, you may also want to see if you can have it removed from your credit report. Without this step, your credit score could not improve as quickly as you would like, as it would otherwise remain on your account for years. So how do you remove paid collections from a credit report? The answer is not too complicated.
How to Remove Paid Recoveries from a Credit Report
First of all, you should start by writing a letter to the collection agency or the creditor and ask them to speed up the process of removing this credit from your report. This letter should include:
- The reasons why you failed in the first place
- What type of plan have you put in place to reduce and pay off your debts?
- A statement of your financial goals for the future.
While it is still worth a try, its operation is not always guaranteed. So be prepared for a potentially lengthy process if it does not meet your request.
What if I decide not to pay off my debt?
Of course, you can also decide not to pay off your debts and they will be deleted from your credit report in about 6 or 7 years, depending on the province in which you live. Although this is an option, we do not recommend this option. . It is always in your best interest to repay what you owe so you can be sure that you will not have any problems with this particular account in the future. In addition, if the collection agency decides to take legal action because you are not paying off your debts, a judge may start to garnish your wages to pay it. Generally, it’s best to just pay the collection account and request that the demerit be removed from your credit report before things get much worse than necessary.Even if you can’t get them instantly deleted from your credit report, paying them off is a step in the right direction.
Also, while paying off these old debts related to collections will help, don’t expect them to completely affect your credit score and credit history. Improving your overall credit takes a lot of time and effort in many areas, but paying your collection accounts will at least keep things from getting worse for you.
Tactics for Paying Your Collection Accounts
So, now that you know that paying off your collection account is usually a good idea if you want to improve your credit, what’s the best way to do it? There are actually different ways to do this, which we’ll look at here. The three most common solutions are to simply pay the amount in full, suggest a payment plan or settle the debt for less than what you owe.
Pay in full
It’s one of the easiest ways to quickly resolve your differences with a collection agency. Full payment can help you reduce debt immediately, so you don’t have to worry about it anymore. However, it can be difficult to raise enough money to make it happen, especially if the debt is large and your income relatively small.
Create a payment plan
This option still allows you to pay your debt, but over a longer period and on a more affordable schedule. This will guarantee debt repayment, without you having to spend your entire life doing it. You and your collection agent should offer a regular payment and schedule that will work for both of you. Of course, make sure you always make these payments and don’t make a habit of missing them.
Your debt can become much easier to pay off if you reach a settlement with your collection agent. This basically means that you agree to pay only part of the debt to eliminate it completely. In general, the larger and longer the debt, the more likely the debt collector will be willing to enter into an agreement. You should also make sure that everything is written. These programs are beneficial because they can cost you less. However, it can sometimes be difficult to agree on the conditions and may seem less attractive on a credit report than to pay in full.
Depending on your unique financial situation, each option will have its own advantages and disadvantages, so it is up to you to decide what is the best way to pay your collection account.
Refunding your collection account will be an advantage for your credit score and your credit report. Hopefully, these debt collection reimbursement tactics have also helped you to know which strategy to adopt to improve your financial situation.