How to remove collections from your credit report in Canada

When financial trouble occurs, it can be difficult to pay all your bills on time. Whether it’s due to divorce, job loss, an unexpected illness, or something else, it can be stressful trying to get your finances back on track. You may also be concerned about the impact late or missed payments could have on your credit report.

It’s important to have good credit so you can get a loan, be approved for a credit card, get an apartment, buy a house or a car, and get the best interest rates when doing so. If you have months of missed payments, your creditor can choose to send your account to a collections agency, which will appear on your credit report as a collections entry. Having a negative entry like this can turn your good credit score into a bad one.

However, it is possible to remove collections entries from your credit history – with some time and effort. Read on to learn effective strategies to remove collections from your Canadian credit report and rebuild your financial standing.

Understand the collections on your credit report

When you have a debt in collection, it means that the creditor has reported the debt to an outside person or agency to recover the amount owed. There are different types of collections, such as medical bills, credit card debt, or unpaid student loans.

The longer an account goes unpaid, the greater the damage to your credit score. Debt in collections is one of the most serious negative impacts on your credit report because it means that the creditor you owe money to has essentially given up on getting it back. Organizations looking at your credit report may see you as a risk due to your history of unpaid debt, and are unlikely to do business with you in the future.

Bruce Sellery (CEO, Credit Bank Canada): “If the call has already been sent to collection agencies, does that mean the damage has already been done to your credit score?”

Doug Howes (Licensed Insolvency Trustee): “There’s already a note on your credit report that you’re behind, yeah… your credit is really bad. You’re already months and months and months behind. So… instead of worrying about your already damaged credit report, deal with the problem and get it over with.” .

~Excerpt from the Moolala: Money Made Simple podcast episode: Debunking Debt Collection Agency Myths featuring Doug Hoyes

It is a common misconception people often have that paying off the collection will immediately remove the entry from your credit report. There is a difference between paid and unpaid collections. When you pay off a collection account, it is marked “paid” on your credit report. This can help improve your credit score, but it won’t completely erase the damage. Regardless of whether your debt is paid or unpaid, the collections entry will not be removed from your report until it expires.

Steps to remove collections from your credit report

While it is possible to remove a collections entry from your credit report, it takes some time and effort. Here are some steps you can take to remove a collections entry from your credit report:

1. Review your credit report

It is important to review your credit report at least once a year from either of the two major credit bureaus in Canada (Equifax and TransUnion), a third-party service such as Credit Karma or BurwellOr your bank’s website or mobile application. Take a look at the report to see what was documented and follow up on the groups’ entries.

2. Check group details

If you find any collection entries on your report, be sure to check the date of the entry and the name of the collection agency. Once you have this information, you can consider whether to remove the collections entry entirely from your report, depending on whether the entry is expired or paid.

3. Wait until the groups entry expires

In Canada, entries for paid and unpaid collections generally remain on your credit report for six years from the date of the first unpaid payment that resulted in your account being sent to collections. Once six years have passed, the collections entry is considered expired and should be automatically removed from your report. Make sure to check that the expired entry was removed when it should have been. If not, you will need to file a dispute with the credit reporting agencies.

4. Negotiating with the creditor

If you have paid off the collection debt in full before the six years have passed, you can ask the collection agency to remove the entry from your credit report sooner. However, there is nothing that requires agency approval for this. The agency’s approval usually depends on the amount of debt and your previous account history.

5. Inaccuracy in the dispute

You can request that the expired collections entry be removed from your credit report by filing a dispute directly with any of the Canadian credit bureaus. Once received, the agency will investigate and if it confirms the entry has expired, it will be removed from your report and will provide written confirmation to do so. You can file a dispute for free online, by mail or by phone.

6. Seek professional advice

Need help understanding your credit report? Contact Credit Canada for personalized advice on rebuilding your financial situation. One of our certified credit counselors can provide advice that fits your specific situation – and our counseling services are completely free! A counselor can also review your credit report and advise you on the best way to address your debt and increase your credit score.

Work with credit repair agencies

A credit repair company is an organization that offers to improve your credit history by removing negative information from your credit report for a fee – which can sometimes be very high. They may also offer to negotiate with credit reporting agencies to improve your credit score or encourage you to take out a high-interest loan to pay off your debt.

Keep in mind that although you can remove a collections entry, you can’t remove the exact information from your credit report – even if it’s bad! You should be skeptical of any company that says they can remove accurate and negative information from your record. Be aware that these agencies make money from fees, setup costs, and interest, so you may end up in more debt without a change in your credit score.

Preventive Measures: Avoid collections on your report

The only way to improve credit is to rebuild it with a positive credit history. You have to prove to your creditors that your financial habits have improved, which takes time. With this in mind, it’s important to try to avoid sending your accounts to groups in the first place. You can do this by:

• Review your credit report regularly To find out what has been documented and whether the information is correct.
• Make minimum payments on due dates As late payment has a negative impact on your credit balance. A history of consistently paying off debt can be a good starting point for maintaining the health of your credit.
• Work on paying your accounts By putting the most money into unsecured debt first, such as payday loans, credit cards, or personal loans, as these loans tend to have the highest interest rates.
• Create and adhere to a detailed budget To keep your finances on track.