How Collection Accounts Can Impact Credit Scores

No one likes the idea of having an account go into collections. Debtors don’t want to be contacted by debt collectors, and creditors would always prefer to get paid up front by their clients. But the real impact of an account going into collections goes way beyond these mild inconveniences.

No matter what type of debt we are talking about, once an account goes into collections it can be reported to the credit rating agencies, where it will make its way onto the debtor’s personal credit report. This can have a damaging impact on the debtor’s credit score for years to come.

When Can a Creditor Send an Account to Collections?

While the detailed rules and regulations surrounding credit reporting vary quite a bit from state to state, a good general rule of thumb is that any unpaid debt that is past an agreed upon due date can be forwarded to a collection agency, which can then be reported to the credit rating bureaus.

Normally, credit reports only contain information on credit accounts like car payments, mortgages, and credit cards. However, if something like a rent payment or utility bill ends up with a collection agency, those things can also show up on credit reports.

How Long Do Collection Stay on Credit Reports?

The short answer here is that you are stuck with any collections that appear on your credit report for about seven and a half years. But like everything else in the world, things are actually a bit more complicated by that.

First of all, the older a collection account is, the lower the impact that it can have on your overall credit score. Outstanding collections can also have varying impact based on how many different accounts are in collections and whether they are paid or not.

Can I Get a Collection Account Removed From My Credit Report?

Once again, there is a short and long answer to this question. The short answer is that once a collection hits your credit report, it’s there to stay.

But since most collection agencies are in the business of collecting outstanding debts, many will agree to withdraw the account from your credit history as part of a settlement negotiation.

What If the Collection Account is Incorrect?

Another way to get a collection account removed from your credit report is to contest the legitimacy of the outstanding debt. If you can prove that something about what the collector is reporting to the credit bureaus is incorrect, you can often get the entire collection taken off of your record.

Contesting outstanding collections in this manner usually just involves writing letters to the credit rating bureaus stating why your credit report is incorrect. It can also help to write similar letters to the collection agencies explaining the errors.

No matter how the original debt happened to occur, once it moves into collections and hits your credit report it has the power to impact your life for years and years to come. Make sure that you are regularly checking your credit reports for any erroneous collection accounts, and also handling any legitimate ones as quickly and efficiently as possible.

By |2017-02-12T14:41:01+00:00October 29th, 2016|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present