How Do Collection Accounts Affect Your Credit?

Collection accounts can drag down your credit score and may remain on your credit report for seven years.

Lisa Mulka
Sean Pyles
By Sean Pyles and  Lisa Mulka 
Updated
Edited by Kathy Hinson

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Having a collection account can be a drag on your credit score. Here’s what to know about collection accounts on your credit report, including when collection accounts are reported to credit bureaus and the impact on your credit.

What is a collection account?

When an account goes overdue, the original creditor will attempt to collect the money owed through repeated billing. Eventually, though, the creditor may turn an unpaid account over to an in-house collection department or sell the unpaid debt to a debt collector. At that point, the account can show up on your credit report as being a collection account, not just an overdue or “delinquent” account.

When are collection accounts reported to credit bureaus?

There’s no rule requiring debt collectors to report a collection account to the three major credit bureaus. A collection account can be reported when a debt collector acquires the debt, or not at all — it's up to the collection agency’s discretion.

But before reporting to the bureaus, debt collectors must attempt to reach you either in person, by phone, with a postal letter or through electronic communications such as email before passing your information along to a credit reporting agency. For mail and electronic communications, collectors must wait at least 14 days to make sure it doesn’t come back as undeliverable.

If you don’t recognize the debt, ask for more information to validate the debt. And watch out for signs of a debt-collection scam, like withholding information, pressuring you for payment by money transfer or prepaid cards, or asking for personal information.

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What impact does a collection account have on your credit?

An account that ends up in collections likely has damaged your credit already. Late payments can significantly hurt your score, though unpaid medical accounts are treated less harshly than other late bills.

How much the collection account will impact your credit depends on your credit score range. Late payments and collection accounts will have a more significant impact on a credit score in the 700s than one in the 500s. That’s because initial signs of trouble on an otherwise good credit record indicate increased risk for creditors, and scoring models are designed to signal that risk. The lower score — likely the result of a series of damaging marks — is already signaling risk to creditors and has less room to fall.

Some newer credit scoring models either ignore paid collection accounts or weight them less heavily. However, most creditors are still using older credit reporting models when making lending decisions.

How long do collection accounts stay on your credit report?

Collection accounts will generally stay on your credit report for up to seven years from the date the account first became delinquent. The account should automatically drop off your credit report after seven years. If it doesn’t, dispute it as a credit report error.

However, when it comes to medical debt, only unpaid collections of $500 or more will appear on your credit reports. Paid medical collections will no longer appear, thanks to new guidance from the three major credit bureaus.

How do you handle a collection account on your credit report?

How you handle a collection account on your credit report depends on whether the account is accurate or not. As noted above, the first step in dealing with debt collection is to validate the debt as yours.

If you determine the debt is yours

There are a few ways to take care of a debt in collections, including paying it off in full, establishing a payment plan and settling the debt for less than what is owed. If you disagree with the exact amount owed, straighten that out with the debt collector first. Be prepared to provide documentation proving your case.

In all cases, request written confirmation that you have satisfied the debt. Once the debt is resolved, you may be able to remove the collection account from your credit report before the seven-year mark.

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If it's an error

If you’re certain the debt you’re being asked to pay is a mistake — because you never owed it, you already paid it, or aspects of the reported debt are inaccurate — take these two actions:

  • Inform the debt collector of the error and request that it cease contact entirely. Third-party debt collectors seeking payment on behalf of a creditor have to obey the Fair Debt Collection Practices Act. If it continues to hound you, file a complaint with the Consumer Financial Protection Bureau.

  • Then, if the incorrect information is on your credit reports, use the credit bureaus’ dispute process to get it removed.

For both steps, gather all documentation on the debt to help make your case. Keep original paperwork and send only copies.

Avoiding collections in the future

Once you resolve a collection account, it’s helpful to know how to prevent a similar situation from happening in the future. Here are some practical strategies to avoid collections on your credit report:

  • If cash flow is the underlying problem, you might try adding a side gig or investigating ways to save money in your overall budget. Or do both, to free up more money to cover bills.

  • Sometimes, simply creating a basic budget can help track due dates and accounts, such as following a budget calendar.

  • If your money simply won’t stretch to cover expenses, look into how to reduce or find assistance with bills

And it's always wise to regularly check your credit reports to make sure no one's opened fraudulent credit accounts in your name that they don't intend to pay.