Collections on your credit history can affect your credit score, making it harder to qualify for a car loan. Learn how to take out collections from credit reports in Canada.
Your credit scores and reports are a crucial part of your financial life. If collection items land on your credit history it can cause your score to drop, which makes it harder to get approved for car loans or other types of credit. You might be wondering how to remove collections from credit reports and whether that might help your score. There are some phrases you can take to reduce the impact of collections on a credit report. If you are successful, this could make it easier to qualify for a car loan and/or get a better interest rate when you take out loans.
What And How Collections Affect Your Credit
When you take out a loan, credit card, or other debt, you are unlikely to assume that you will not be able to repay it. If you default on your payments for a debt, including medical bills, your creditor may transfer your account to its collection department or assign it to a collection agency. It depends on the creditor; some will report your account to collection agencies when you are due 30 days, while others will give you 60, 90, or even 180 days to inform you before your account goes into debt collection.
Once an account is in debt collection, debt collection agencies may contact you to try to get you to pay the amounts owed. You will usually receive a written notification stating your account number and creditor name, the amount you owe, and how many payments you are in arrears. Debt collection agencies may also call you to request payment, although you may require that they only contact you in writing.
The types of debt that can end up in debt collection agencies can include:
- Unpaid credit card bills
- Personal loans
- Student loans
- Car loans
- Tax debts
- Business loans
- Medical debt
Negative account information, including late or missed payments and collection payments, can remain on your Canadian credit reports for up to six years. If a debt collection agency sues you and obtains a judgment against you to force you to pay, this can remain on your credit report for up to 10 years, depending on the province you live in.
Lower credit scores associated with debt collection accounts can make it harder to obtain approval for new credit. Creditors may consider you high-risk and reject your application. Or you may get approval but pay the highest interest rates. This makes borrowing more expensive over time.
How To Check Your Credit Report For Debt Collection Claims
A regular review of your credit reports can help you determine whether you have collection accounts that could harm your score. You can request a free copy of your Canadian credit report in writing from Equifax Canada and TransUnion Canada. If you do not have time to wait for your credit reports to be sent, you can purchase a copy of your credit reports online from both offices.
Remember that your credit reports and credit scores are two different things. The data in your Canada credit report is used to figure out your credit scores. If you also want to see your results, you can request them separately from each credit institution for a fee.
Once you have copies of your Equifax and TransUnion credit reports, check them carefully. Look for collection accounts and when you find them, make note of them:
- Who is owed the debt
- The name of the debt collection company, if there is one
- What is the debt level?
- How many payments are in the account
Also, make sure you have the right contact information for debt collection companies that you need for the next step. Again, some creditors will forward due to accounts to their own collection department, while others will give or sell past due accounts to a debt collection company. You need to know who you can turn to if you want to remove debt collection companies in Canada.
How To Remove Collections From A Credit Report
Note that the tips provided here assume that a collection account assigned to you is correct. If you find a collection account in your Canadian credit report that does not belong to you or contains incorrect information, you should challenge it with the credit reporting agency before doing anything else.
If you want to remove accurate collections from your credit report in Canada, proceed as follows:
Ask For A Receipt. As soon as you are contacted by a debt collection agency, send them a letter asking them to confirm the debt. Ask them to verify the name of the original creditor, the amount owed, and whether the debt is still within the limitation period for your province. Debts that are outside the limitation period will no longer be considered recoverable.
Request Pay For Delete. Pay for delete is important an agreement in which you request the debt collector to remove a collection account from your credit report in exchange for payment. Whether or not they agree to this usually depends on how old the debt is, how much debt you have in the account and how much you have had in the past. Remember that if you request cancellation, you will pay the full amount owed, including the original balance, plus interest and any fees the debt collector may charge.
Negotiate A Settlement of The Debt. If a debt collection agency is unwilling to pay for cancellation or you are unable to pay the debt in full, you may consider settling the debt. This means that the debt collection agency agrees that you must pay less than you are owed to close the account. This will not necessarily remove a debt collection account from a credit report, but it will have a paid status that could help your score. When settling a debt, remember to keep a paper trail showing when it was paid and receive a letter from the debt collection agency confirming that the account has been satisfied.
Wait. If a debt is nearly expired, or if it is an older debt that has been on your credit report for several years, time can be your best tool. For example, if you have a debt that is close to the six-year reporting limit, you may simply wait for the account to submit your credit report. Whether it makes sense to wait depends on whether you have urgent credit needs, such as a car loan or buying a home, then you would need to clean up all old debt collection accounts first.
These are all steps you can take yourself to improve your credit history, but if you are uncomfortable talking to your creditors, you might want to consider hiring a credit repair agency to manage collection accounts. Credit repair companies can assist you to negotiate with creditors to resolve collection accounts, usually for a fee.
While there are many reputable credit repair agencies in Canada, there are also companies that try to defraud unsuspecting consumers. Before you agree to work with a Canadian credit repair company, first research your references, business history, and reputation, as well as verify the fees. If a credit repair company charges a fee before lifting a finger to help you, that is a big red flag that it could be a scam.
If you are seeking further support, you might want to consider credit counseling. What is credit counseling? We will escort you through what it is, how it works and how it influences your credit. We are here to help you rebuild your loan and take control of your finances.
Credit Management Tips For The Future
If you are successful in removing collection accounts from your Canada credit report, the next step is to improve your credit. You can do this by:
- Payment of all bills punctually every month.
- Keep credit card balances low, relative to your card limit.
- Leave older credit accounts open.
- The use of a mixture of different types of credit.
- Only if you really need a new loan.
Increasing your credit score after removing a collection account can take time, but with patience and adopting good credit habits like these you can start to see your score grow. It can pay off in the long run if you are willing to take out a loan for your next big purchase.