Ok, so now we know what's on our credit and our credit score. Let's clean it up a little! I want to start with collection accounts since they are the most detrimental to your score. Never pay anyone to do this for you! It is pretty simple and I am going to walk you step by step.
1. Call the creditors - I must admit this is the most daunting task but you have to get it done. On your credit report, it will tell you who is reporting the debt and their contact information. This step is just for fact-finding. You do not want to mention anything about paying the debt. Remember when I told you collection accounts fall off after 7 years? Well, if you mention that you will pay, that 7 years will start all the way over! Keep the conversation short and simple. The conversation should go something like this:
You: Hello, I was checking my credit report and noticed that (insert company here) was listed. I wanted to see what this was about.
Them: Sure, let me just pull up your account.... OK, I see that there is an outstanding balance that is in collections.
You: How much is the balance? Is that the only balance showing?
You: OK, thank you so much for your help. Have a good day!
Please make sure you write this information down. You are going to have this conversation with every single credit collection company showing on your report. Once you have confirmed all of the balances, you have two options. You can either (a) wait until they fall off by themselves after 7 years or (b) pay them off. Depending on how long they have already been there, you can make that determination. Just know that your credit score will not improve until they are gone!
2. Strategize - The upside to collection companies is that they have bought your debt from the original company for pennies on the dollar. This puts you in a position to negotiate. For demonstration purposes, one of your debts according to the collection company is $1000. You currently only have $700 in your account to use to pay this debt off. Offer it! 9 times out of 10, they will accept whatever they can get as long as it is reasonable. If you go this route, please make sure you get something in writing from the company stating that the debt has been satisfied. If you skip this important step, they can act like they have no idea what you are talking about and later try to collect on the debt again. When you have the payment conversation, be sure to confirm that the account will be removed from your credit report.
3. Dispute what you can - All three credit bureaus give you the option to dispute what it is on your credit report. Use this option if you call the creditors and they don't have the accounts anymore. I have had this happen with a few of my accounts. The process to dispute is very simple!
Transunion - https://dispute.transunion.com
Experian - https://www.experian.com/disputes/
Equifax - https://www.equifax.com/personal/disputes
Whether you pay off the balances or dispute items, it will take a month or two for it to properly reflect on your report. It will not happen immediately! Sit back, congratulate yourself, and wait for your credit score to improve. You did it! The hard part is done! Next, we will talk about the debt snowball.