Collections on your credit history can hurt your credit score, making it more difficult to qualify for a car loan. Learn how to remove collections from credit reports in Canada.
IN THIS POST, WE COVER:
- What collections are and how they affect your credit
- How to check your credit report for collections
- How to remove collections from credit report in Canada
- Tips to help manage credit going forward
Your credit reports and scores are an important part of your financial life. When collection items land on your credit history it can cause your score to drop, making 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 could help your score. There are some steps you can take to minimize the impact of collections on a credit report. If you’re successful, this could make it easier to qualify for a car loan and/or get a better rate when you borrow.
What collections are and how they affect your credit
When you take out a loan, credit card or other debt, you probably don’t anticipate not being able to pay it back. If you fall behind on your payments for a debt, including medical bills, your creditor can turn your account over to its collections department or assign it to a collection agency. The timing depends on the creditor; some may report your account to collections when you’re 30 days past due while others may give you 60, 90 or even 180 days to get caught up before your account goes to collections.
Once an account is in collections, debt collectors can contact you to try to get you to pay what’s owed. You’ll typically receive a written notice referencing your account number and creditor’s name, the amount you owe and how many payments you’re behind. Debt collectors can also call you to ask for payment, although you can ask that they only contact you in writing.
The types of debts that can end up in collections may include:
- Unpaid credit card bills
- Personal loans
- Student loans
- Car loans
- Tax debts
- Business loans
- Medical debts
In terms of your credit score, debt collections can knock off substantial points. Negative account information, including late or missed payments and collections, can stay on your Canadian credit reports for up to six years. If a debt collector sues you and gets a judgment against you to force you to pay, that can stay on your credit report for up to 10 years, depending on which province you reside in.
Lower credit scores associated with collection accounts can make it more challenging to get approved for new credit. Lenders may see you as high-risk and deny your application. Or, you might get approved but pay the highest interest rates. This makes borrowing money more expensive over time.
How to check your credit report for collections
Checking your credit reports regularly can help you determine whether you have any collection accounts that might be hurting your score. You can request a free copy of your Canadian credit report from Equifax Canada and TransUnion Canada in writing. If you don’t have time to wait for your credit reports to be mailed out, you can purchase a copy of your credit reports from either bureau online.
Keep in mind that your credit reports and credit scores are two different things. The information in your Canada credit report is used to calculate your credit scores. If you’d also like to see your scores, you can request them separately from each credit bureau for a fee.
Once you have copies of your Equifax and TransUnion credit reports, review them carefully. Look for any collection accounts and if you find them, make a note of:
- Who the debt is owed to
- The name of the collection agency, if there is one
- How much is owed
- How many payments the account is behind
Also, make sure you have the right contact information for debt collectors, which you’ll need for the next step. Again, some creditors will route past due accounts to their in-house collections department while others will assign or sell past due accounts to a collection agency. You need to know who to contact if you want to remove collections from your credit report in Canada.
How to remove collections from a credit report Canada
Note that the tips included here assume that a collections account assigned to you is accurate. If you find a collection account on your Canadian credit report that isn’t yours or that has incorrect information, you’ll want to dispute it with the credit bureau that’s reporting the information before doing anything else.
If you want to remove accurate collections from your credit report in Canada, follow these steps:
- Ask for debt validation. Once you are contacted by a debt collector, send them a letter requesting that they validate the debt. Ask them to verify the name of the original creditor, the amount owed and whether the debt is still within the statute of limitations for your province. Debts that are outside the statute of limitations are no longer considered collectable.
- Request pay for delete. Pay for delete is essentially an agreement in which you ask the debt collector to remove a collection account from your credit report in exchange for payment. Whether they agree to this usually depends on how old the debt is, how much is owed and your past account history. Keep in mind that if you’re asking for pay for delete, it’s with the expectation that you’ll pay the full amount owed, including the original balance as well as interest and any fees charged by the collection agency.
- Negotiate a settlement of the debt. If a debt collector isn’t willing to agree to pay for delete or you can’t pay the debt in full, you might consider a debt settlement. This means the debt collector agrees to let you pay less than what’s owed to resolve the account. This won’t necessarily remove a collections account from a credit report but it will show a Paid status, which could help your score. If you’re settling a debt, remember to keep a paper trail showing when it was paid and get a letter from the collection agency acknowledging that the account has been satisfied.
- Wait it out. If a debt is close to its statute of limitations or it’s an older debt that’s been on your credit report for several years, time may be your best tool. If you have a debt that’s almost at the six-year mark for reporting, for instance, you might just wait to let the account drop off your credit report. Whether it makes sense to wait depends on if you have a pressing credit need, such as getting a car loan or buying a home, that would require you to clean up any old collection accounts first.
All of these are steps you can take on your own to improve your credit history. But if you don’t feel comfortable talking to your creditors, you might want to consider hiring a credit repair agency to handle collection accounts. Credit repair agencies can help you negotiate with creditors to resolve collection accounts, usually for a fee.
While there are plenty of reputable credit repair agencies in Canada, there are also companies that try to scam unsuspecting consumers. Before agreeing to work with any Canadian credit repair company, do some research first. Check their credentials, business history and reputation, as well as reviewing the fees. If any credit repair company asks for a fee before they lift a finger to help you, that’s a big red flag that it might be a scam.
If you’re looking for some extra support, you may want to consider credit counselling. What is credit counselling? We’ll walk you through what it is, how it works and how it affects your credit. We’re here to help you rebuild your credit and take control of your finances.
Tips to manage credit going forward
If you’re successful in removing collection accounts from your Canada credit report, the next step is working on improving your credit. You can do that by:
- Paying all of your bills on time each month.
- Keeping your balances on credit cards low, relative to your card limit.
- Leaving older credit accounts open.
- Using a mix of different types of credit.
- Only applying for new credit when you truly need it.
Raising your credit score after having a collections account removed can take time. But with patience and the adoption of good credit habits like these, you can begin to see your score grow. That can pay off down the road when you’re ready to borrow for your next major purchase.
At Birchwood Credit Solutions, we understand that perfect credit can sometimes be difficult to achieve when you have a past collections history. We work with buyers from virtually every credit background to help find financing solutions to fit your needs and budget. Browse our extensive inventory online today to find your next vehicle. If you’re ready to learn more about what types of financing you qualify for, you can start by completing our online loan application.