Highlights:
- If you fall behind on payments, your credit account may be sent to a collection agency or sold to a debt buyer
- You are still legally obligated to pay debts that are in collections
- Collections accounts can have a negative impact on credit scores
Past-due accounts that have been sent to a collection agency can be a source of confusion when it comes to your credit reports and credit scores. What does that mean? And if you pay off the accounts, can they be removed from your credit reports? We’ve broken down what you need to know.
What is a collection account?
If you fall behind on payments, the lender or creditor may transfer your account to a collection agency or sell it to a debt buyer. This generally occurs a few months after you become delinquent, or the date you begin missing payments or not paying the full minimum payment.
Typically, lenders and creditors will send you letters or call you regarding the debt before it is sent to a collection agency. You may not be notified if your account is being sold to a debt buyer, however. The collection agency or debt buyer will then attempt to collect the debt from you.
If your debt is sold to a debt buyer or placed for collection with a collection agency, you are still legally obligated to pay it. You may end up making payments directly to the collection agency or debt buyer instead of the original lender.
Is a collection account different than a charge-off?
A charge-off means the lender or creditor has written the account off as a loss, and it is closed to future charges. The account may still be sold to a debt buyer. Paying the past-due amount to the lender before it is sold may prevent a collections account from being reported on your credit reports (assuming the lender reports to one or more of the three nationwide credit bureaus). In this case, your credit reports may still have the charge-off account reported by your lender or creditor but may not have the additional account from the debt buyer.
What impact do collection accounts have on my credit scores?
A collection account may be reported to one, two or all three of the nationwide credit bureaus (Equifax, Experian and TransUnion) and reflected on your credit reports. It can also have a negative impact on credit scores, depending on the credit scoring model (different ways credit scores are calculated). Some credit scoring models may ignore debt collections for smaller amounts – if the original debt was less than $100, for example. Some credit scoring models may also treat different kinds of debt differently – for instance, medical bills versus delinquent credit card bills.
How long do collection accounts stay on my credit reports?
Like other negative information, a collection account can remain on your credit reports for up to seven years from the date you first miss a payment to the original lender or creditor.
What if I pay the debt?
If you pay the collection account, it should be reported to credit bureaus by the lender as paid, and would be listed as a paid collection. If you pay the account before the seven-year period is up, it can remain on your credit reports, but its effect on credit scores may lessen if it’s shown as paid, depending on the credit scoring model used. Some credit scoring models ignore paid collection accounts.
What if I believe the account information is inaccurate?
A good first step is to contact the lender or creditor. You can also file a dispute with the credit bureau that furnished the report where the account is listed. To file a dispute with Equifax, you can create a myEquifax account. Visit our dispute page to learn other ways you can submit a dispute.
If you have a past-due debt
If you want to avoid having an account sent to collections, contact your lender or creditor to see if they will work with you on a payment plan or other arrangements. If your account has already been sent to a collection agency or sold to a debt buyer, contact that agency or debt buyer to see if they can help with a payment plan or settlement amount.
The Consumer Financial Protection Bureau has more information, including information on negotiating a settlement.
FAQs
So, how many points does a collection drop your credit score? If you have a high score of 700, you can expect the first collection to drop it over 100 points. If it's lower than 700, expect even more.
What is the best reason to put when disputing a collection? ›
Valid reasons to dispute a collection include inaccurate or incomplete information, lack of proof of debt, already paid debt, expired debt, identity theft, or mistaken identity. A collection dispute letter can be sent to the collection agency, requesting proof of the debt and addressing any discrepancies.
How do I fix my credit score after collections? ›
8 Steps to Rebuild Your Credit
- Review Your Credit Reports. ...
- Pay Bills on Time. ...
- Lower Your Credit Utilization Ratio. ...
- Get Help With Debt. ...
- Become an Authorized User. ...
- Get a Cosigner. ...
- Only Apply for Credit You Need. ...
- Consider a Secured Card.
A collection account may be reported to one, two or all three of the nationwide credit bureaus (Equifax, Experian and TransUnion) and reflected on your credit reports. It can also have a negative impact on credit scores, depending on the credit scoring model (different ways credit scores are calculated).
Can I get a 700 credit score with collections? ›
It is theoretically possible to get a 700 credit score with a collection account on your credit report. However, it is not common with traditional scoring models. A derogatory mark like a collection account on your credit report can make it incredibly difficult to obtain a good credit score like 700 or over.
How many points will my credit score increase if a collection is paid in full? ›
Your credit score may not increase at all when you pay off collections. However, if your debt is reported using a newer credit scoring model, your score may increase by however many points were impacted by the collections debt. It would also depend on the time passed since getting the negative mark.
How can I get a collection removed without paying? ›
If there are negative items on your credit report but the information is accurately reported, you can write a goodwill letter to ask the creditor or collection agency to remove the collections account from your report. This isn't guaranteed to work, but it won't hurt to ask.
What is the 11 word phrase to stop debt collectors? ›
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
How can I raise my credit score 100 points overnight? ›
How to Raise Your Credit Score 100 Points Overnight
- Become an Authorized User. This strategy can be especially effective if that individual has a credit account in good standing. ...
- Request Your Free Annual Credit Report and Dispute Errors. ...
- Pay All Bills on Time. ...
- Lower Your Credit Utilization Ratio.
According to most credit scoring models, paying off a collection account doesn't stop it from having an effect on your credit. You'll usually have to wait until they reach the end of their seven-year reporting window.
Paying off collections could increase scores from the latest credit scoring models, but if your lender uses an older version, your score might not change. Regardless of whether it will raise your score quickly, paying off collection accounts is usually a good idea.
Will a deleted collection raise my score? ›
The removal of a derogatory collection account could improve your credit score, but the original debt might still remain. Whether you experienced a tough financial situation or simply forgot about a debt you owe, collection debts can happen.
What happens if you never pay collections? ›
If you don't pay, the collection agency can sue you to try to collect the debt. If successful, the court may grant them the authority to garnish your wages or bank account or place a lien on your property. You can defend yourself in a debt collection lawsuit or file bankruptcy to stop collection actions.
How to get a collection removed? ›
Here are steps to remove a collections account from your credit report:
- Do your homework and gather your evidence.
- Dispute the account if there's an error.
- Ask for a goodwill deletion if you paid the collections.
- Confirm the change you sought was made on your credit reports.
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
Will my credit score go up if I pay off collections? ›
For some credit scoring models, paying off collection accounts may improve credit scores. FICO® Score 9, FICO Score 10, VantageScore® 3.0 and VantageScore 4.0 credit scoring models penalize unpaid collection accounts. Paying off collection accounts may help improve these scores.
Does collection under 100 affect your credit? ›
Collections reported with an original amount under $100 are disregarded by FICO® Score 8, FICO® Score 9 and the FICO® Score 10 suite. Unpaid medical collections >$500 are considered, but have less impact on the score within FICO Score 9 and the FICO Score 10 Suite compared to older FICO Score versions.
Can collections be removed from a credit report? ›
Successfully disputing inaccurate information is the only surefire way to get collections removed from your credit report. If you've repaid a debt and the collection account remains on your credit report, you can request a goodwill deletion from your creditor, though there's no guarantee they'll grant your request.
