04-Aug-2017 written by : FSI-Team
A credit report gives a true picture of how an individual has managed his credit responsibilities. If you make timely payments and keep you debt utilization low, this positive information will reflect in your report and help you climb up the CIBIL score ladder. However if you make late payments or skip them altogether you may find yourself in the loan defaulter's list. This negative information will affect the CIBIL score calculation and tarnish your record. Lenders will not lend money to such risky candidates who have a high probability of defaulting.
If you default on unsecured loan accounts and stop making repayments for several months, the creditor may either turn it over to the internal collections department or sell it off to a collections agency. In case of secured loans, it will repossess the asset, auction it and then sell the remaining debt to a collection agency. In both cases your name will enter the loan defaulters list. The information about the default and unpaid debt will be reported to the bureau each month and affect your CIBIL score calculation. The damage can last for years and during this time you may not be able to secure loans at favourable interest rates. So what can you do if you find a collections account on your credit report?
Order all 3 credit reports- The first step to deal with this situation is to know exactly what is being reported in the credit reports and what is bringing your score down. Order your reports from all 3 credit reporting agencies. Sometimes the information of the 3 reports may vary. Check whether the debt mentioned is indeed yours.
Request for validation- You may send a validation request asking the collection agency to provide proof that you owe them money. Also ask them to provide details of the balance amount owed. If the collector doesn't respond or doesn't provide sufficient proof the debt should be removed from the report. So in case you feel that the claims of the collection agency are not valid or inaccurate you can challenge and dispute the error with the credit bureaus.
Dispute- In case the debt is not yours, you should take action right away. Fraud and identity theft errors can be disputed with the credit reporting agencies. Contact the credit bureaus and ask them to delete the inaccurate information. Let the collection agency know that you do not owe the debt. In the absence of sufficient proof the information has to be deleted from the report.
Pay off collections- If the claim of the collection agency is valid and you did default in the past, there are still ways to lessen the damage done to your report. Pay off your past due accounts. A paid collection account will be viewed in a better light than an unpaid account by the lenders. Though paying off the collections account won't have much effect on the CIBIL score calculation, it will at least reduce the amount of debt you owe and relieve your stress.
Pay for delete- As long as the collection account stays on your report, whether paid or unpaid, it will continue to have a negative effect on your score. So try to negotiate a 'pay for delete' deal with the agency. It means that they will stop reporting the account info to the bureau in exchange of a certain amount of payment. Send a letter to the bureau stating your willingness to clear the account if they agree to remove the entry from the credit report. The collection agency may sometimes agree to the arrangement if they receive the full payment of the debt. You may try to settle for an amount less than the balance owed. But whatever arrangement you arrive at make sure you get the agreement in writing. Once you pay the agreed amount, check the report to see whether the delinquent account entry is removed from your report or not.
Goodwill deletion- You may send a goodwill deletion letter, asking the collections agency to remove a paid collection account from your credit report. Though it may seem like a long shot, sometimes this option works surprisingly well too. Explain the agency that you are going through rough times and a collection account on your report is not letting you get approved for loans. The agency may remove it out of goodwill.