If you defaulted on a federal student loan, your servicer may sell it to FedLoan Collections. If you’re hearing from them via phone or mail, they probably reported your debt to the credit bureaus. This collection hurts your credit even more than the defaulted debt from your loan servicer already caused.
The good news is you can remove FedLoan Collections from your credit report with a few simple steps. It doesn’t mean you won’t owe the debt – if it’s legitimately yours, you must pay it, but you won’t have it haunting you on your credit report.
Here’s what to do.
Ask for Debt Validation
Before you assume the debt is valid, ask for debt validation. You have the right to do this, but only 30 days from the date they first contact you for it to matter.
If FedLoan can’t validate your debt in the 30 days, they must remove it from your credit report – it’s the law. Asking for validation is simple, but make sure you do it in writing. A few questions you can ask to validate the debt include:
- Who is the original creditor?
- When did the charge the debt off?
- What balance did they charge off?
- What’s the account number?
- What date was the last payment made?
- Do you have the right to do business in my state?
If they don’t respond within 30 days, validating the debt, dispute the debt with your credit bureau (steps below).
Dispute the Debt
If FedLoan can’t validate the debt, use these steps to dispute it. Even if they did validate it or you missed your 30-day window, you can still dispute it if any of the following are true for you:
- The account number is incorrect
- The balance or payment amounts are wrong
- Your name is wrong or misspelled
- The dates are incorrect
Any information you find that’s wrong, you can dispute. If the FedLoan can’t prove otherwise, they must remove it from your credit report – it’s the law.
Negotiate a Settlement
Even if FedLoan removes the debt from your credit report, you still owe it, unless it was a complete error.
If they won’t remove it from your credit report based on your dispute, you can negotiate a settlement that includes a provision to delete it from your credit report. If you include this in your negotiations in writing, you have proof for the credit bureaus if FedLoan doesn’t follow through.
Think about how you want to start your negotiations before you talk to them, though. You’ll need to come up with a settlement amount you can afford, but that they will accept too. We suggest that you start low, so there’s room for FedLoan to counter offer.
Other Ways to Improve your Credit Score
Even if you get FedLoan to remove their account from your credit report, the fact is that you defaulted on a debt and the original creditor will report the default.
While you work with FedLoan to remove the debt from your credit report, work on your credit score at the same time with these steps:
- Bring all payments current. If you have any debts over 30 days late, pay them now and keep up to date with your payments. Set up autopay if you can’t remember to pay your bills on time or have trouble staying organized.
- Lower your outstanding credit. If your credit cards have over 30% of the credit limit outstanding, work on paying your debts down. Work on the debt with the largest percentage of the credit outstanding first so you lower your credit utilization rate.
- Don’t open new credit. Every time you open new credit, your credit score drops slightly because of the inquiry for new credit and the lower credit age new credit causes. Try avoiding applying for new credit unless you absolutely need it.
It’s important to get FedLoan off your credit report as quickly as possible. Collections stay on your credit report for up to 7 years. That’s a long time for future lenders to see you defaulted on a debt. While the collection doesn’t bring your credit score down the entire 7 years, the fact that it’s there will make future lenders unsure about lending you money.
Do what you can to remove FedLoan from your credit report and then work with them to satisfy the debt on terms you can afford.