How Debts in Collections Affect Your Credit

How Debts in Collections Affect Your Credit

If you have neglected paying your bills, or a creditor's records mistakenly indicate that you have, you may have accounts in collections. It is important to know how this affects your credit and what you can do about it, since having an account in collections can be devastating to your score.

While it is best to avoid them, if you already have collections reported on your credit report, there are a few things you should know.

What is a collection?

A collection can result from a debt that has not been paid on time. If you become significantly delinquent on a debt, such as a medical bill or credit card bill, the original company owed will often write off this debt as a loss and sell it to a collection agency. The collection agency will then attempt to recover the money owed.

While different creditors and lenders have different policies, many credit card accounts are sent to a collection agency after 180 days of non-payment. Either the original creditor or the collection agency may report the account in collections to a credit bureau, resulting in the account being marked on your report with a "collection" status. You will not necessarily be notified by the original creditor that your account is being sent to collections.

If an account in collections is reported on your TransUnion or Equifax credit report, you can access your full report or the collections page to view details about any reported accounts. (You'll only see the collections page if open or closed collections accounts have recently been included on your report.)

What does it mean for my credit?

If you have an account reported as in collections, your credit score may drop by a substantial amount. The degree to which a collection hurts your credit score is generally correlated with how high your credit score is when the collection agency reports the debt. The higher your score, the more points you can lose.

In addition, the amount of damage to your credit score may be affected by the collection amount, or how much you owe. For example, if the original debt you owed was less than $100, the resulting account in collections may show up on your credit report but it may not significantly hurt your credit score or even hurt it at all. Some credit scoring models may also differentiate between types of collections debt, such as medical versus non-medical, or disregard collections accounts that have been paid.

The resulting credit score drop from having an account in collections can impact your future financial plans. It may cause you to be denied for credit cards and loans, especially if the collection is recent or remains unpaid (or both).

Tips on What to Do With Collections Accounts

There are many different ways to respond to debt collectors and what's most appropriate for you will depend on your circumstances. If you believe the collection account information is accurate, you could attempt to negotiate and settle with the collection company. We recommend you check out resources from the Consumer Financial Protection Bureau on how to reply to a debt collector and what the best ways are to negotiate a settlement.

While you are determining what to do with your account in collections, make sure to keep your other debts and accounts up-to-date.

As time passes, the collection account may have a less significant impact on your credit. In addition, paying all your other bills on time could help your credit score recuperate from a debt collection.

How to Dispute an Erroneous Collections Account

As with other types of credit report errors, you may file a dispute with the credit bureau if you believe the collections account reported is false or outdated. For example, if it is not your debt or if it has been seven years from the original delinquency of the debt, you could request to have the collections information removed from your report.

Learn about how to dispute wrong information on your credit report.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

All Comments

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2 Contributions
1497 People Helped

Helpful to 1493 out of 1531 people

I am doing this on my own, getting items removed from my credit report after paying them. I haven't had any letters sent to the collections company, I call and ask if they will do this, if they say yes, I pay it. If it is not removed in the next 30 days, I submit complaint to BBB, and guess what, it is taken off within 2-3 days. I have had 5 items deleted from my credit report in the last 2-3 months! You don't need to hire anyone to help you, this can be done on your own/by yourself.

Reply by
cmdriscoll

2 Contributions
117 People Helped
Helpful to 115 out of 159 people

Can you share what your doing, b/c I have paid off a lot and they are still there as unpaid,  open dispute for 'paid in ful' and they are still there. Even sent copies of the receipts to the 3 Major Credti bereaus and they are still there. Whats your secret msjade205

Reply by
Tiger2132

1 Contribution
100 People Helped
Helpful to 100 out of 138 people

what if you settled a situation through a collection agency years ago but it still shows up on your report even though you have a letter stating it was paid how do you get that deleted?

1 Contribution
997 People Helped

Helpful to 997 out of 1073 people

The thing that the collections agencies do not want you to know is that the papers you sign at the doctors office/hospital prohibits hospitals from giving collection agencies access to your debt. It is against your right to privacy and in some states is against the law. I just found this out today and I will be looking into getting my medical bills taken off my report. 

Reply by
denikids4

4 Contributions
259 People Helped
Helpful to 256 out of 289 people

believe hospital debts do go against your credit, but I've learned just to go back to the hospital first to pay the debt and frankly thats with any debt always go back to where it originated from its easier and cheaper.

5 Contributions
2428 People Helped

Helpful to 260 out of 312 people

Listen up, folks...

*DO NOT PAY YOUR ACCOUNTS IN COLLECTION*

*YOU ARE ONLY THROWING AWAY YOUR MONEY*

Paying a collection company means you are giving your money away to a seedy collection company who strongarms and confuses people into paying these things all the time.  Your benefit?  Nothing.  *Nothing at all*

The original creditor has already sold the debt to the agency and your credit score is tarnished for 7 years.  End of story.  Welcome to America!

Take a swing back at the completely corrupt system that has put you in this situation and DO NOT PAY THE COLLECTION AGENCY EVER.

Here's why:

No matter what happened to lead you to having a derogatory mark -- whether it was actual deliberate negligence with a credit card, or completely uncontrollable medical debt -- the greedy lawyers and bank lobbyists who set up this idiotic system simply lump all of this debt together in one big "you didn't pay for this" category on our reports.

The end result is: you pay higher interest rates for EVERYTHING.  Which means *even more money* for the big banks.  Good luck getting our government to fix this, too!  It benefits those who have all the money, which incidentally are the people who run the government.

No matter how small the bill, no matter if it was an insurance company's clerical error / disorganization that led to the mark showing up on your report; It's there, it's severely impacting your credit score, and it's not going anywhere for seven years.  Period.

There seems to be a lot of faux information floating around that you can "pay-to-delete" accounts in collections from your report, but this is completely and totally unsupported by ANY facts.  I have *NEVER* seen a single *reliable* reference for how to handle this.  If pay-to-delete isn't analogous to the tooth-fairy, then CreditKarma should offer an integrated service (no 3rd party stuff which just seems like paid advertising) to help with this specific issue.  They don't.  Why?  Because you can't do this.  Because it's illegal.

At a minimum, CreditKarma should have an official "pay-to-delete" info page to dispell these rumors and set the facts straight.

Reply by
Jdana70

2 Contributions
56 People Helped
Helpful to 56 out of 73 people

What your saying is crazy. You can pay off the bill and ask the collection agency to remove it and they will. It will not hurt you for 7 years because if they agree to delete it they will.

3 Contributions
126 People Helped

Helpful to 125 out of 140 people

The whole system needs a revamp its absurd that I have over $50,000 worth of paid off cars over the year alone without missing a payment. I get sick and have about 2k in debt and my credit tanks to Very poor because of missed payments and collections. Life happens for the people that say "Just pay your bills" get over your self.

Anyway you can pay 1000 things on time and get 30-40 points missed 4-5 and your done for, for years. Horrible system

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