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Settling Collection Accounts in a Credit Report

By Ruth Racey
Published: Sunday, September 20th, 2009

For a cardholder struggling with poor credit ratings and tarnished credit scores, nothing could be worse than a collection account in a credit report.

But what exactly is a collection account? Well, basically, these are records of a previous creditor giving up on collecting a debt from the consumer. Lenders and creditors would often write this off as a loss to get tax benefits. At the same time, they would send the account to a third party collection agency. The agency is then given the authority to try to collect the money from the cardholder. They would also place this in the credit report under the company’s name.

In most cases, consumers would often mistake these accounts and entries as errors or mistakes by the credit bureaus. They would even contest the presence of the accounts and demand for their removal just because they do not know about their existence.

Having collection accounts in a credit report can deal a huge blow to a cardholder’s credit record. Their credit scores and ratings would also suffer from the entries. Future lenders and card issuer would also consider twice before extending credit simply because of the accounts’ presence on the reports. Dealing with new creditors and businesses can be much harder because of collection accounts. Creditors and lending companies will be reluctant to transact with consumers having collection accounts on their credit reports. They will tend to believe that if they close a deal with a particular cardholder, they can suffer the same fate as the previous creditors.

To address this problem, consumers should first contact their credit bureaus immediately. Cardholders should always notify the credit agencies if they are unsure of any entries in their credit reports. At best, taking up the matter with the credit bureaus can mean removing the entries from a credit report. Otherwise, there may be a need to deal with past creditors and the collection companies directly.

Negotiating with the previous creditor and the collection company can help resolve the matter. Because they have written off the account as a loss, they are more likely to get any payment from the debtor rather than receive nothing at all. Negotiating for a pay-off with the company can mean acceptable payment terms for the consumer and the deletion of the accounts from the credit reports. Collection companies would often go for negotiations and settle for less than the original amount.

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