Paying off past due collection accounts can result in a worse credit rating and significantly extend the period that the bad credit account remains on the credit report. It is important to determine if the collection account is active, or inactive before taking steps to address the collection account. Taking the wrong course of action can increase the derogatory effect the account has on the credit rating. Furthermore paying off collection accounts can include a deletion letter if removal from the credit report is critical.
Analysis of this issue uncovered two classes of collection accounts and two separate courses of action that appeared to accomplish the desired results. The two classes of collection accounts are:
ACTIVE. Collection accounts actively being pursued by collectors;
Active collection accounts are identified by:
- Collectors are making contact. Letters, phone calls.
- Collectors are actively reporting the past due account to a credit bureau.
INACTIVE: Collection accounts that are NOT actively being pursued by collectors.
Inactive collection accounts are identified by:
- No recent contact from a collector. No phone calls, no letters for several months.
- The account is not being reported to a credit bureau.
If there are active attempts to collect the debt, the consumer usually knows about it. Collectors making phone calls and sending collection letters will contact the consumer. Some collection accounts however are active but no contact is made. These are accounts where the collector retains control of the account and uses the bad credit reporting instead of letters and phone calls. This happens most often for economical reasons determined by the collector when the account balance is relatively low: Medical bills; utility bills. Or, when the collector deems the likelihood of recovery low and chooses not to spend money to collect.
A consumer can determine if an account is actively being reported to the credit bureaus by examining the "Last Reported" date included in the listing of the past due account on the credit report. If this date is recent, within 6 months, the account is most likely being reported by a collector and is active. If the last reported date on the consumer's credit report is older than 6 months (the older the better), the account is most likely NOT being reported by a collector and may be inactive.
We found that is it important to review credit reports from all three credit bureaus because not all collectors report to more than one credit bureau and, consumer collection accounts are transferred between many collection agencies. This practice by collectors of transferring accounts can leave multiple bad credit accounts for the same collection account. For instance a consumer had one ambulance bill reported 4 times: 3 were therefore Inactive; 1 was active.
Once the activity status is determined, the appropriate course of action is clear.
