How Collections Can Impact Your Credit History

collections impact on credit history

Credit scores are a piece of information that is necessary for most of the major financial decisions you make in your life by helping you get mortgages, loans, and credit cards. Additionally, some employers look at your credit reports before they even consider hiring you.

Because of the many uses of credit reports and scores, it is important to work on increasing your credit score as much as possible over your lifetime. Every time a collection account appears on your credit report, it can negatively impact your overall credit reports, thereby affecting your credit score.

Collection Basics

These accounts will appear on your credit report every time a collection agency reports a debt to credit bureaus. Collections can be due to defaulted credit card payments, unpaid medical bills, and various other types of accounts. This report of debt to credit bureaus can impact your credit score because it essentially says that the company to whom the debt belongs wrote the account off as a loss prior to selling that debt to a collection agency.

collections

How Long Do Collections Stay on Your Credit Report?

Generally, collection accounts will stay on your credit reports for seven years plus 180 days from whenever the first collection account became past due. In most cases, any debt that goes to collections will take seven years to leave your credit report.

Medical collections, however, have a few unique aspects regarding how they are reported. As of June 2016, medical debts will not be reported until after a 180-day waiting period to allow insurance payments to be applied to any outstanding balance and to provide time for consumers to resolve any billing errors.

Medical collections also impact your credit scores differently than other types of collection accounts, although it dependents upon the credit scoring model utilized. Unpaid medical collections also tend to have less impact when it comes to credit scores.

What Can Be Done to Help Collections Fall Off My Credit Report?

It might seem like making payments or fully paying off the debt that is being collected will help make it fall off your credit report quicker. In most cases, however it does not impact the length of time the collection stays on your credit report. Which is important to know because if an unpaid debt is still within the statute of limitations, the agency can sue you for payment.

If you do end up paying off a debt completely, there are some cases when collection agencies may agree to contact the credit bureaus and remove that debt account from your report before the seven-year mark. However, this is entirely up to the collection agency’s discretion.

credit report

If you contact the collection agency prior to paying off the collection account, you can inquire as to whether the agency will update your report after paying the account in full. If the agency refuses to do so, ask if the account can be updated to reflect “paid as agreed upon” once the payment(s) are received. Further, if the collection agency agrees to update your report, ask to obtain a copy of this agreement in writing before proceeding with any payments to ensure they will uphold their end of the deal.

Final Thoughts

Nobody wants derogatory accounts on their credit reports – especially those due to collection accounts. If you have any negative information that is unfair, inaccurate, or unverified, give the credit specialists at Lexington Law Firm a call for a free credit report consultation.

 

 

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