Can a Debt Collector Remove Data From Your Credit Report?

Some consumers suffer from the misconception that paying off an account that has gone to collections will improve their credit score. They hold that belief in part because they think that a debt collector is going to remove the negative account from their credit report once the debt is paid in full. Those consumers are most likely wrong on both points.

Collections And Your Credit Report

Whether a collections account is paid or unpaid, it will remain on your credit report for seven years, longer in some states. In some cases the damage is more severe if a debt collector obtained a court order to garnish your wages for the debt. The presence of a collections account means that you are a higher lending risk. There is good news: the damage to your credit score will fade with time.

So, if the account will remain on your credit report for seven years, should you bother paying off the debt or ignore it? There are two reasons to pay the debt. One is that paying off the debt does make you seem like slightly less of a lending risk. The second is that it removes the threat that a debt collector may take the issue to court and seek wage garnishment. In some states, placing a debt in front of the court resets the seven year clock for that debt to be on your credit report, damaging your credit score for even longer.

Is A Debt Collector Able To Remove Data From Your Credit Report?

At one time debt collectors would remove negative accounts from your report if you made it a condition of paying off the debt. That is no longer true. Debt collectors have the ability to do so, they choose not to. Debt collectors rely on the data provided by credit reporting agencies in order to determine which debts are the most collectible. Removing an account from your credit report would damage that source of information.

However, debt collectors recognize that improving your credit score is powerful leverage that can be used to get old debts paid. So, instead of removing data, they will often offer this: You pay the debt, then contest the debt with the credit reporting agencies. For their part, the debt collector will agree not to respond to the inquiry that will come from the agencies. In most cases, if the inquiry is not answered, the negative action will be removed by the credit reporting agencies. It is sort of the long way around, but your goal is still met.

Is It Worth The Aggravation?

Whether all of this is worth the time and aggravation depends on your financial goals. Are you planning to seek a large loan in the near future? If so, the lender will pull your credit reports. Seeing a debt in collection which still has a balance, the lender will factor the debt into your debt-to-income (DTI) ratio. With a high DTI you are very likely to be denied the line of credit that you are seeking.