How to Rebuild Credit After Collections

A credit account, such as a credit card, becomes a collections account after you stop paying as agreed. The account is closed by the creditor and is listed internally as a write-off for tax purposes. Meanwhile, your credit report is updated to show that the account has been "charged off" -- another term for a collections account. Charge-offs and collections are considered to be very negative credit events and can cause your credit score to drop. Even after your credit score recovers, some creditors, such as mortgage companies, may require you to resolve old collection accounts before being approved for credit.

Instructions

1

Get a copy of your credit report. View and print your report from Annual Credit Report. The website is authorized by the Federal Trade Commission to offer free reports under the terms of the Fair Credit Reporting Act. You are entitled to one free report every 12 months from major credit bureaus: Experian, Equifax and TransUnion.

2

Review your credit report to find accounts that are listed as charged-off. Contact the creditor or debt collector to make payment arrangements. Use the contact information on the report. Ask for the terms of any agreement in writing, including a commitment that your credit report will be updated to show that the account has been paid once you complete payment.

3

Make a commitment to on-time payments on all of your accounts. Keep debt levels low, preferably less than 30 percent of your credit line on every revolving account. MSN Money reports that creditors like seeing that you have much more credit available than total debt. Also, the Federal Trade Commission reports that the passage of time is the best remedy for credit problems. Paying off old collection accounts can improve your credit report, but the manner in which you are paying current obligations will likely have a greater impact on your credit score.