If you have a collection on your credit report, you may be wondering how it may impact your FICO® Scores. Below we share answers to the most commonly asked questions about collections. As with any derogatory information, when reported, its impact on a FICO Score will gradually lessen over time as they age off the credit report.
1. What is a collection?
If you become significantly delinquent on a credit obligation such as a credit card or medical debt, the lender or company owed will often consider it a loss and sell it to a collection agency who will then try to collect on the money owed.
Lenders commonly send credit card accounts 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. The account will be marked on your credit report with a "collection" status.
2. What is a third-party collection?
Third-party collections are collection efforts made by a collection agency, outside of the original crediting company. First-party or internal collections is when the lender or company uses its employees to collect unpaid accounts.
3. How do FICO® Scores consider third-party collections?
How the credit reporting agencies report collections and how FICO Scores consider third-party collection information has evolved and it can differ by the score version.
- Paid medical collection debt and medical collection debt <$500 are no longer being reported by the credit reporting agencies and therefore are not considered in the calculation of any version of the FICO Scores.
- Collections reported as paid in full are disregarded by FICO® Score 9 and the FICO® Score 10 suite.
- 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.
First-party collections are still treated as derogatory and are not afforded these special treatments.
4. Will paying off the balances owed on my third-party collections increase my FICO® Scores?
Paying off a collection could cause the score to increase, decrease or have no impact at all. It depends on the change in the information reported on the collection as well as the other information in the credit report. For example, this action would likely have a lower positive impact if the individual has a lot of other negative information on his/her credit report. On the other hand, if the collection is the only negative item being reported, paying it off could help to increase the score.
5. Does the balance reported on a collection impact your credit utilization calculations within the FICO® Score?
Balances on third-party collections do not impact credit utilization characteristics within a FICO Score. Balances reported on first-party collections may be considered in credit utilization characteristics.
6. Does a FICO® Score consider whether a third-party collection balance is paid in full versus being settled for an amount lower than the initial amount?
"Settled" third-party collections reported with a zero balance will be treated as paid and not considered in FICO Score 9 and FICO Score 10.
7. How long does a collection stay on a credit report?
Third party collection accounts stay on the credit report for seven years from the original delinquency date of the original debt or the date of the first missed payment, after which the account was no longer brought current. You may see both the collection account and the account with your original creditor on the credit report.
Now armed with information about collections, check out the myFICO Forums to see how members deal with their debt and collections.
FAQs
In many cases, it doesn't even matter how much it is if it's over $100. Whether you owe $500 or $150,000, you may see a credit score drop of 100 points or more, depending on where you started. To make matters worse, a paid collection on your credit report is just as bad as an unpaid collection.
Can you have a 700 credit score with collections? ›
Yes, it's possible to achieve a higher credit score even with collections on your report, but it's more challenging. The impact of collections on your credit score diminishes over time, especially if you maintain good credit habits like making payments on time and keeping your credit utilization low.
Can I remove collections from my credit report? ›
You can ask the creditor — either the original creditor or a debt collector — for what's called a “goodwill deletion.” Write the collector a goodwill letter explaining your circ*mstances and why you would like the debt removed, such as if you're about to apply for a mortgage.
What happens if you never pay collections? ›
If you never pay a debt in collections, the immediate consequence is a significant negative impact on your credit score. This derogatory mark can stay on your credit report for seven years, affecting your ability to secure loans, credit cards, and favorable interest rates.
Is it worth paying off collections? ›
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.
Do collections go away after paying? ›
Like other adverse information, collections will remain on your credit report for 7 years. A paid collection account will remain on your credit report for 7 years as well. There is a state exception for residents of New York for which paid collections fall off their credit reports after 5 years.
How do I fix my credit after collections? ›
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.
Should I pay off a 5 year old collection? ›
Paying off the debt won't necessarily remove it from your credit history, but could improve your score over time. If you are currently trying to get approved for a mortgage or other loan, paying off old debts can improve your odds of approval.
Will my credit score go up if I pay collections in full? ›
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.
Will collections delete if I pay? ›
NOTE: Paying a debt collection account doesn't remove it!
The balance will show as $0 and the status would be listed as paid in full. However, the collection account itself will still remain. If you settle an account for less than the full amount owed, the balance should also be reduced to zero.
There's no concrete answer to this question because every credit report is unique, and it will depend on how much the collection is currently affecting your credit score. If it has reduced your credit score by 100 points, removing it will likely boost your score by 100 points.
How to get out of collections without paying? ›
You cannot remove collections from your credit report without paying if the information is accurate, but a collection account will fall off your credit report after 7 years whether you pay the balance or not.
What's the worst a debt collector can do? ›
Debt collectors are not permitted to try to publicly shame you into paying money that you may or may not owe. In fact, they're not even allowed to contact you by postcard. They cannot publish the names of people who owe money. They can't even discuss the matter with anyone other than you, your spouse, or your attorney.
Do unpaid collections fall off? ›
According to the Fair Credit Reporting Act (FCRA), negative items can appear on your credit report for up to 7 years (and possibly more). These include items such as debt collections and late payments. The time frame begins from the original date of the delinquency (the date of the missed payment).
Is it better to dispute or pay a collection? ›
You should dispute a debt in writing if: You do not owe the debt; You already paid the debt; You want more information about the debt; or.
How to fix 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.
Debt settlement typically has a negative impact on your credit score. The exact impact depends on factors like the current condition of your credit, the reporting practices of your creditors, the size of the debts being settled, and whether your other debts are in good standing.
