Getting Rid of Collections & Increasing Your Credit Score

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Collections. I’ve heard over the years that when you have accounts that have gone to collections you can negotiate and potentially settle the accounts for less than the amount.

Well, recently in working on a family project the running of our credit was required. In doing so, a couple of small collection accounts surfaced – four altogether.

So I decided to see if it was true that we could settle the accounts. We are not professional negotiators, but we ended up settling everything for about 60 percent of the amount owed.

What I noticed is that you actually need to ask if they are willing take a lesser amount – it’s not just offered. Also, in some instances they seem to have a preset amount that they will take – an amount set by the original creditor. (To get started, you can obtain the phone numbers for the collection agencies from your credit report.)

Remember you can also request a letter stating that the account is settled in full – for most settlement documentation via mail, email, or online it takes 7-10 days.

IRS Lien

There were a couple of weightier items that surfaced – IRS liens.

You should note if they are old liens (10 years), you can request a Release of Lien by calling the Centralized Lien Department at 1-800-913-6050. You can then submit the Release of Lien to the recording office in the county in which the lien was filed – that way the lien no longer shows up in public records.

Otherwise, you can request the payoff amount for the lien, make an appointment to go into a local IRS office; take in a cashier’s check for the payoff balance.

If you’re not able to pay the lien off in one lump sum, the IRS offers a couple of options:

  • Application for Lien Withdrawal (Form 12277).   It takes about 30 days to get an answer. If your request is denied you* can appeal the decision

  •  An Offer in Compromise.  You offer to pay the IRS less than the amount owed. This process can take up to two years.

  • Installment Payments. These allow you to pay what you owe in monthly installments.

*I would suggest enlisting the assistance of an Enrolled Agent to prepare and submit any of these three options.

Well, with the collections settled, our credit scores went up. So, we decided to do one more thing.

Pay Down Credit Card

It wasn’t a collection, but we paid a credit card balance to $0. We then added a young family member on the card as an authorized user to further increase her score.

It’s great to have everything in order. At the end of the process, our scores increased 50 to 70 points.

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