How to Dispute Collections: A Step-By-Step Guide (+ Best Dispute Reasons)[yoast-breadcrumb]
How to Dispute Collections: A Step-By-Step Guide (+ Best Dispute Reasons)
Having an account in collections can be stressful and damaging to your credit score. However, you have rights under federal law to dispute collections and request debt validation. This guide will walk through the step-by-step process for disputing collections, provide template letters, and discuss the best dispute reasons to use.
What Does It Mean to Have an Account in Collections?
When you fall behind on paying a debt, creditors have a few options. First, they will likely contact you directly to try to work out a payment plan. However, if you are unable to pay and the creditor writes off your debt as a loss, they may sell or transfer the account to a third-party debt collection agency. This agency then becomes responsible for collecting the past-due amount you owe.
Having an account in collections means you owe money to a creditor that they have all but given up on receiving. The original creditor sells the debt for pennies on the dollar to a collections agency, who then makes money by pursuing payment from you. Having an unpaid collection account on your credit report indicates to future lenders that you have failed to pay back a past debt obligation.
How Do Collections Impact Your Credit Score?
Collections can significantly damage your credit score. According to FICO, having accounts in collections can lower your credit score by up to 100 points. Defaulting on debt obligations shows future creditors that you are a high-risk borrower.
Here are some key ways collections hurt your credit:
- Your payment history – which makes up 35% of your FICO score – will show serious delinquencies. This indicates you have missed or defaulted on payments.
- It lowers your credit utilization rate by removing the original debt amount from balances owed.
- It damages your credit history length by replacing the original credit account with a new collections account.
In addition to lower scores, having collections can make it more difficult to obtain credit, financing, insurance, housing, and even jobs down the line. Therefore, it is in your best interest to address collections accounts immediately and work to remove them from your credit report.
What Rights Do I Have in Disputing Collections?
Under federal law, you have certain rights when it comes to disputing and validating debt collections. The Fair Debt Collection Practices Act (FDCPA) provides consumer protections, while the Fair Credit Reporting Act (FCRA) regulates credit reporting agencies and furnishers of information.
Key rights include:
- To dispute inaccuracies – You have a right to dispute any errors or mistakes on your credit reports that relate to a collections account. This includes incorrect balances, account details, etc.
- To request debt validation – Within 30 days of first contact, you can send a debt validation letter to require the collection agency verify they have the right to collect the debt.
- To send a cease and desist letter – If a collector is contacting you illegally or excessively, you can send a cease and desist letter demanding they stop communication.
- To sue for damages – Under the FDCPA, you can sue a collections agency for actual damages, additional damages up to $1,000, plus court costs and attorney fees if they violate regulations.
Understanding these rights is key to taking control of the collections process. You have legal power to remove inaccurate accounts, require proof of the debt, and stop harassment tactics.
Step 1: Request a Debt Validation Letter
Within 30 days of being contacted by a collection agency – whether via letter, email, text, or phone call – you can send a debt validation letter. This requires the agency to provide written documentation that proves they have a right to collect on the debt, including:
- Proof that you are indeed the debtor they are seeking to collect from.
- A full accounting of the total amount being collected, including a breakdown of charges and fees.
- Details about the original creditor, when the debt was turned over to collections, and the statute of limitations.
The collector then has 30 days to respond with the requested documentation. If they cannot provide all required details, by law the collection account must be removed from your credit report.
Here is a sample debt validation letter you can customize:
[Debt Collector Name]
[Debt Collector Address]
Re: [Account Number for Debt]
Dear [Debt Collector],
I am writing regarding account number [xxx] that you have contacted me about collecting on. Under the Fair Debt Collection Practices Act, I am requesting validation that this debt is indeed mine, and an accounting of the amount you are seeking to collect.
Within 30 days, please provide me with the following proof and information:
- Verification that I am the actual debtor you are seeking to collect from.
- A copy of the original account agreement or contract that created this debt.
- The name, address, and telephone number of the original creditor before you obtained the debt.
- An itemized accounting of the total debt amount, including principal, interest, fees, and other charges.
- The date you acquired this debt and the statute of limitations that applies.
I request that you cease collection activities until you provide this debt validation. Under the Fair Debt Collection Practices Act, if you cannot validate this debt then you must remove it from my credit report and refrain from any further collection efforts.
I look forward to your response within 30 days. Let me know if you have any questions.
Be sure to send this letter via certified mail with return receipt requested. This will give you documentation of the date it was received. Keep copies of all letters as well.
Step 2: Review Debt Validation Response
Once you receive a response to your validation letter, be sure to review it thoroughly for any inaccuracies, incomplete information, or failure to verify the debt:
- Incorrect personal info – If any spelling of your name, address, account number, etc. is wrong then the debt may belong to someone else.
- Missing documentation – If the collector does not provide complete statements, account records, etc. then they have not properly validated the debt.
- Unsigned agreements – All original account agreements must be signed to prove you agreed to the debt terms and amount.
- Expired statute of limitations – If the statute of limitations has passed for collecting on the debt in your state, then you are not legally obligated to pay.
If the response fails to meet the requirements of your request, then you can send another letter demanding removal of the collection account. Be sure to highlight exactly what information is missing or inaccurate.
Step 3: Dispute with Credit Reporting Agencies
In addition to disputing directly with the collection agency, you should also file disputes with the three major credit bureaus – Equifax, Experian, and TransUnion. This is necessary in order to investigate whether the account is being reported accurately.
You can file a dispute online, by phone, or through the mail. Be sure to include:
- Personal information including full name, address, date of birth, and Social Security Number
- A list of accounts you are disputing, including creditor name and account number
- A 100 word statement detailing why you are disputing the accounts
- Copies of any letters sent to or received from the collection agency
The credit bureau then has 30 – 45 days to investigate whether the collection accounts are accurate and being reported correctly according to the Fair Credit Reporting Act (FCRA). If they cannot verify accuracy, then the accounts must be removed.
Mailing Address for Disputes:
- Equifax – P.O. Box 740256, Atlanta, GA 30374
- Experian – P.O. Box 4500, Allen, TX 75013
- TransUnion – P.O. Box 2000, Chester, PA 19016
Step 4: Send Cease and Desist Letters
If a debt collector contacts you illegally or excessively, you have a right under the FDCPA to send a cease and desist letter demanding they stop communication. Illegal behavior may include:
- Calling outside hours prescribed by the FDCPA
- Harassing or threatening tactics
- Contacting you after receiving a cease and desist letter
- Calling your workplace after being told not to
- Failing to provide written notices about the debt
A cease and desist template looks like:
[Debt Collector Name]
Re: [Account Number]
Dear [Debt Collector],
Under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, I am formally requesting that you cease all communication with me regarding the above referenced debt.
I request that you stop calling me, sending me letters, or attempting to collect this debt in any way. Any further attempts to collect this debt would violate federal law.
I have kept documentation of all contacts up until this point and will continue to do so. If you violate this cease and desist notice, I retain the right to take legal action and report such violations to the Consumer Financial Protection Bureau.
[Your printed name]
Keep a detailed log of all further attempts to contact you. Under the FDCPA, you have a right to sue for damages if violations occur.
Step 5: Negotiate Payment or Settlement Offer
If after disputing a collections account the debt is validated as yours, you can then move to the payment negotiation stage. Even with older debts, collectors may be willing to negotiate payment plans, reduced lump sum payoffs, or settlements for less than what you owe.
Tips for negotiation include:
- Get any offers in writing before making payments
- Start low – offer 20-30% of the total amount as a settlement
- Propose a monthly payment plan you can afford over 3-6 months
- Ask about payment options – can you pay securely online?
- Explain your financial hardship but willingness to resolve the debt
- Request removal from your credit report as part of the deal
By law, any payments or settled amount must be reflected in your credit report and cannot be misrepresented. Get all agreements for reduced payments, account closure, credit reporting, etc. in writing.
Best Dispute Reasons and Strategies
When drafting your dispute letters, include details on any of these common reasons to contest collections:
“This account does not belong to me” – If the name, address, SSN, or other identifying details on the collection account are inaccurate, then it likely belongs to someone else. Provide proof of identity and demand it be removed.
Past Statute of Limitations
“The statute of limitations has expired” – Statutes of limitations on debt collections range from 3 – 10 years depending on your state. Reference the applicable law and request validation the statute has not yet expired.
Lack of Notification
“I was never notified of this debt” – Collectors must send official notice within 5 days of initially reporting a debt to credit bureaus. Claim you never received proper notification and the collection account should be deleted until proven otherwise.
Debt Already Paid
“This debt was already paid in full on [date]” – If you have records of the accounts being previously paid off or settled with the original creditor, provide that documentation and request immediate removal from credit reports.
“The amount is incorrect” – Require the collector provide a full payment history and accounting to validate where additional fees, interest, and other charges originated from. Dispute any inaccuracies in the total amount.
The more persuasive details and evidence you can provide, the better your chances of getting adverse collections accounts deleted. Be persistent, and continue filing disputes until the negative items are removed.
Getting Help with Disputes
If you need assistance crafting effective dispute letters or navigating the collections process, here are further resources:
- Submit a complaint to the Consumer Financial Protection Bureau for violations by collectors.
- Hire a credit counselor or consumer protection attorney.
- Contact your State Attorney General’s office about your rights.
With persistence and by exercising your rights, you can repair credit damage from collections accounts and regain control of your financial health. Don’t let collectors intimidate you – you have legal power to validate debts and protect yourself from harassment.