If you're in the process of cleaning your credit, you may have an item or two that went to collections. Most of the time these are medical bills or utility bills after a move, and unpaid credit cards. The tactic that most credit repair agencies use is to dispute the item relentlessly (every 30 days) with the credit bureaus until the item comes off your credit report.

This is not to say that the item will not pop back up on your credit report if the collector reports it at a later date. For the purposes of buying a home, disputing is a temporary fix and may prove useful in improving your credit scores until you get into your home.

Many collectors are so persistent that the item will not budge even after numerous attempts by the credit repair agency to dispute. If it doesn't look like its going to fall off your credit report any time soon, you will want to pay it off at this time.

NOTE: Negative items typically fall off after 7 years, unless the creditor or collector continues to report it to the credit bureaus. So choose your battles wisely. Your credit report will show when a collector reports your account to the bureaus. If it hasn't been reported in years, leave it alone. If it's repeatedly reported…

It's time to roll up your sleeves and negotiate. Call the collection agency and let them know you want to settle your debt. Tell them that you mean to do the right thing and take care of your outstanding debts, but only have a limited amount extra money to work with, and it won't last long so you want to pay them now.

They may automatically make a settlement offer to you. I usually don't see collectors with the starting offer at half the payoff balance, but it happens. Before you let them give you a payoff amount, give them one. Offer half or even less than half (or whatever you think you can handle) and express that you have this money to pay them only at this time.

A collector may flat out say “no, I cant do that” Politely tell them that this is all you have and you cant afford to give them more, but you would like to take care of this debt. And hang up. Call them back a few days later and make the same offer, see if they change their mind.

This is the most important part. If they agree to your offer, get it in writing. I've had collectors agree to take your payment over the phone and settle your debt, only to find out that they had only applied the portion you paid to the full balance and no settlement was agreed to. YOU STILL OWE THEM MONEY! This was obviously not the agreement you made.

Get the agreement in writing. Ask them to mail or fax a signed settlement agreement that shows your amount settling the debt entirely, and bringing your balance to zero, totally paid off. Let them know that when this is done, you will wire the money, or overnight a cashier's check, so they get their money fast. You must also ask for a receipt of payment, because this is not the end of your work.

A paid collection STILL stays on your credit report. Even though it's paid, it remains as a derogatory item. This does nothing to increase your credit score. So there's one thing left to do. You must get it off the credit report by asking the bureaus to remove the item.

It's time to dispute again. But now you have a receipt that shows the item was paid in full. Ask the credit bureaus to remove the item from your credit report, reason being that the item was paid. You can dispute by regular mail or fax and include all agreements received, plus the paid receipt. Then watch your credit. If the item doesn't come off, dispute consistently until it does. Once the item is removed, watch for your credit score to improve.

Sometimes it takes quite a while to improve your credit enough to be able to purchase or refinance your home. Even if you have bad credit, there are brokers that can still get you a loan. Buying a home improves your credit merely on its own. It may be financially beneficial to buy or refinance your home now, repair your credit over the following year, then refinance into a long term loan with a great rate!