Best ways to handle collection notices

You open your mailbox and BAM! You’ve been hit with a collection notice. Even worse, you have no idea WHY. 

But before you freak out, follow these 3 steps to handle it and find out what credit damage, if any, has been done. 

Find the source of the collection 

Does the amount look familiar to you? Can you determine who started the collection process? If you don’t recognize the original creditor, call the collection company on the notice to find out who they’re working for. 

KEEP IN MIND: Calling and speaking with a collection rep to find out the source does not obligate you to pay immediately. 

KEEP IN MIND: Be polite on the phone. The person on the other end will be more willing to help. 

Companies with monthly recurring fees—gyms for example—are notoriously eager to start collections if only a single payment was missed; it could be due to a simple oversight such as the expiration of the payment method on file. Impatient medical offices and labs may also prematurely pull the trigger on collections before medical claims have been fully processed. Whatever the case, it’s up to you to get the ball rolling toward a resolution. If you don’t, your credit score may be negatively impacted.

Check your credit report

Collection representatives may also be able to tell you whether the company has reported delinquent info to credit reporting agencies. You may be surprised to hear that in some cases, they haven't.

In some cases the collection notice is only a first attempt to get payment—the threat to hurt your credit standing is hopefully scare tactic enough to get your attention without them resorting to reporting negative information.

What does this mean? Your credit scores are okay (for now) and resolving the bill can make it go away, with no credit damage.

KEEP IN MIND: Even if the collection agency hasn't reported anything to the credit reporting agencies, the original creditor may have already done so. It’s best to double check. 

You’ll want to pull a free credit report by going to If you’ve already claimed your free credit reports for the year, then head to free services like Credit Sesame or Credit Karma (both have fantastic mobile app versions, too). You can then get an idea of your credit reports and scores from the two main bureaus Experian and TransUnion, respectively. More importantly, you’ll be able to see if any fresh delinquent info has been reported.

Deal with it (as in, pay it or settle it)  

If you are in fault and able to pay the collection notice in full then do so. If you found that it hasn’t hit your credit report, even better. Note however, that collections already showing on credit reports will likely report a "Paid" or "Satisfied" status. 

Paying in full may not be feasible for large balances. If you wish to dispute, negotiate or settle the amount, then you may need to discuss these terms with the collection agency and involve the original creditor.

If settling for less than the amount owed, a collection is more likely to hit your credit report with a "Settled" status. 

If this happens, your credit score will be impacted. However, a satisfied collection is better than an ignored collection, in which case your credit score will take a bigger hit and it may take over two years before improving. 

When settling balances with a creditor or collection agency, remember to request balance settlement terms in writing; verbal assurances may not be passed from one rep to another and you shouldn't rely on reps to note settlement negotiations in detail. 

In the meantime, newer collections showing on credit reports may result in your difficulty to obtain and qualify for new services, products and utilities. New credit and loans will come with higher finance charges and interest rates, so it’s best to resolve any collection notice as soon as you get it. As the collection gets older and you make timely payments on other credit accounts, your credit score will improve.

KEEP IN MIND: Document the process. Keep all paper statements, written records, notes of phone conversations—including dates, times and names of agency reps—and any payment receipts and confirmations.