How to Dispute Collections on Credit Reports

Unpaid debt that’s been reported by your lender to a collections agency can put a dent on your credit rating, appearing on your credit report as a negative item. If you’ve fallen behind on payments with a lender and a collections account has shown up on your credit report, a dispute with the credit bureaus likely won’t be successful.

If, however, you think a collections account has appeared by mistake on your credit report, the good news is that there are ways to successfully dispute a collections mistake on your report. 

Here are the dispute process steps you need to follow to remedy an account that’s gone to collections:

Conduct a thorough investigation of all of your credit reports

It’s vital to monitor credit reports regularly to see if there have been any collection accounts, errors or fraudulent transactions on your report. The sooner you notice an error, the sooner you can dispute it and get it fixed. Contact Canada’s two credit bureaus, Equifax and TransUnion, to request free credit reports and then review them carefully to see which account has gone to collections. To help speed up the process, you can quickly download and review your Equifax credit report through Borrowell.

Check to see if the collection listed is legitimate 

Errors are possible. Take a close look at your report to see who the creditor and collection agency are, how much you owe, and how behind you are on payments. Normally, the creditor would have contacted you via email, phone, or letter to inform you the account was going to collections, so you’ll at least be forewarned that it’s happening.  

Next, you’ll need to decide on a course of action: You’ll have three main options: 

• Dispute any collection accounts that are inaccurate or incomplete: Obviously, you should not be responsible for erroneous credit reports. Contact your credit bureau to have the collection account removed. Both Equifax and TransUnion have their own forms you will need to fill out to officially register your dispute. The credit bureau will then investigate your claim and inform you of their findings in approximately five to 30 days.

• Request a Deletion for Goodwill: If you were indeed in arrears but you’ve now made the payment, you can contact the collection agencies and ask that they remove the collection account from your credit report as a gesture of goodwill. Even if this seems out of reach, it’s worth trying and is more likely to be successful if you have a high credit score and don’t have a history of bad credit.

• Wait for it to fall off: If you were late with payments, your only recourse may be to wait. Collection accounts normally remain for about seven years on your report so you could just wait for it to fall off after the allotted time.

What Does it Mean to Have a Collection on Your Credit Reports?

A collection is when you miss one or more payments on your credit account (such as a credit card, loan, or utility bill) and so your creditor sends it to a collection agency to recover the funds you owe. 

The unfortunate truth is that no matter how responsible we try to be with credit, sometimes a person can fall behind on a credit card or loan payment despite their best efforts. When a person misses several payments, eventually the credit account will get sent to collections. That means that your payments are so overdue or erratic that your creditor has decided to stop trying to collect the money themselves and has turned over your account to a collection agency. 

Each individual creditor will have their own standard timeline for handing over an account to collections. Some may give your account to a collection agency when your account is as little as 30 days overdue, whereas some creditors may wait 180 days or even longer. 

Sadly, collection accounts on your credit report are one of the surest ways to put a dent in your credit score. Collections accounts can even affect your ability to take out new loans or get approved for a credit card. Bad credit reports can also lead to a hard time finding a job or getting an apartment. Worst yet, it can take years to increase credit scores and get your credit files back in shape.

Equifax and TransUnion each have different ways of noting a collection account on credit reports. In general, a report will show the age of the account and have a record of how many missed payments you’ve had. It may also note that the account has been sent to collections. The specific account could also have a number “9” beside it (meaning it has been registered as bad debt) or a symbol “CO,” meaning it has been charged off to a collection agency. If you’re uncertain, contact the credit bureau.

How Much Does a Collection Account Affect Your Credit Score?

A collection account can significantly affect credit scores. That’s because your credit score is made up of five main factors: payment history, credit utilization, credit history, credit mix and credit inquiries.

Of the five factors, your payment history accounts for a whopping 35% of your credit score. When your habit of late payments is significant enough to have reached the collections stage, credit bureaus take that seriously and correspondingly decrease your score. In turn, potential creditors will not deem you as creditworthy, meaning it will be much harder to get credit cards, loans, and more. 

Late payments on accounts that haven't been sent to collections will still appear on your credit report and can also impact your credit score, although less severely. If you believe a late payment has been recored on your credit report by mistake, you can dispute late payments in a similar manner to disputing collections.

How Many Points Will My Credit Score Increase if a Collection is Deleted?

Canadian credit bureaus don’t specify how many points you lose when an account goes into collections, so it’s difficult to say how many points your score will gain when a collection is deleted from your report. A standard rule of thumb, however, is that the better your score is and the stronger your credit history, the less an account in collections will negatively affect your score and the easier it will be to recover from a negative event. 

How Long Does it Take for Collections to Fall Off Your Report?

In general, collections fall off your credit report after six years. The specific amount of time that a collections account will remain on your credit report depends on the credit bureau.

Equifax and TransUnion handle collection accounts a bit differently. With Equifax, collection accounts are listed on your credit report for a period of between six and seven years, after which they are removed. TransUnion will keep a collections account on your credit report for six or seven years and then will automatically remove it from your report. 

It’s crucial to note that, contrary to what many people believe, a collection is not taken off your report as soon as you pay it. It will still stay on your report for the full six or seven years. However, if you pay off the account quickly, the negative effect on your credit score may be lessened depending on the credit scoring model the credit bureau uses.

What Are Valid Reasons to Dispute a Collection?

There are several valid reasons to dispute a collection. If you fall into any of the below categories of disputes, you’re likely to be successful:

• If there is a mistake on your report and the collection account doesn't belong to you.

• If the collection still shows on your report after 7 years.

• It may also be worth disputing a collection if your debt is sold to a third-party collection agency (i.e., not the in-house collections department of your original creditor). Debts are often sold to other collection agencies and the new creditor may not have all the original documents and information pertaining to the debt and missed payments. In this case, a credit bureau would not be able to verify the account and so the bureau may remove the disputed collection account from your report.

Does Disputing a Collection Hurt Your Credit?

Filing a dispute will not hurt your credit. If you are disputing a mistaken collection account, the negative impact that the collection has on your credit score will be reversed once the error is corrected. Note, however, that the error will continue to have a negative effect on your score and your ability to get new credit until it’s removed. Because of that, you should dispute a mistake as soon as possible.

If, however, you dispute a collection account for which you are indeed responsible and continue not to make payments in the hope that it will go away, it could continue to affect your credit score for the six to seven years it’s on your account because your credit report will show that you never made payments on the debt.

How Long Does it Take to Dispute Collections on Your Credit Report?

It can take anywhere from a week to 30 days on average to dispute an error on your credit report. Finding an incorrect collections listed on your credit report can be frustrating. However, fixing a credit report error is possible and shouldn’t take you too much time once you get the ball rolling with Equifax and TransUnion.

Bottom Line

Clearly, having a collection on your credit report should be avoided if at all possible as it can have long-term negative effects on your credit report and score. If you do have a legitimate claim against a collection that has been listed on your report, it’s best to file a dispute as quickly as possible. 

If you can’t get it resolved by contacting the creditor or the collection agency, you would then need to contact Equifax and/or TransUnion and follow their respective dispute process. During the dispute investigation, the bureau will review your documentation and will contact your creditor or collection agency directly to establish if there has been an error. If the account has gone to collections by mistake or if the creditor can’t adequately verify that your account is in arrears, it will then be removed from your report. Hopefully a credit bureau would respond to your claim in as little as five days — though it could take as long as a month or more.