Does A Collection Agency Affect Your Credit Score?

How does a Collection Agency impact your credit?

Getting an account taken to collections can be stressful. You might be thinking about how it will help or harm your credit score when applying for loans or credit cards. This guide will explore how collection accounts are reflected in credit reports together with information on how you can get them removed.

How Collection Accounts Affect Your Credit Scores?

The three credit reporting agencies that lenders rely on when they check credit reports and scores when reviewing loan and credit card applications are Equifax, Experian, and TransUnion. These bureaus obtain details from lenders, collection agencies, and the courts about your payment history and the amount you owe.

If the initial creditor or the organization to which you have a balance that remains unpaid sells this balance or assigns it to a collection agency, this agency is going to report the status of this balance to the credit reference bureaus. The collection account will remain on your credit reports under the Collections category. This has a major negative effect on your credit score as calculated by each bureau.

In conclusion, a relatively recent collection account can reduce your credit score by as much as 100 to 300 points. The extent of the reduction depends on the initial score as well as other favorable or unfavorable elements in the credit report. People with good credit expect their first drop to be relatively low compared to people with fair or bad credit.

While having a new listing to a collection is the immediate boost, these accounts will keep pulling your score down as long as they are unpaid or unresolved.

The time that your collections will remain on your credit report

By the FCR Act, credit collection accounts can be reported on the credit report of an individual for as long as 180 days more than seven years from the time the original creditor first placed the account on the credit report as seriously delinquent. This is the case even if later on you pay the collector or clear the outstanding balance. The seven years restarts from the time when a person defaults on the payment and not when it goes to the credit collections.

Thus, one late or missed payment that leads to a default can linger on your credit for close to ten years. This is why it is crucial to keep on-time payments if possible all your loans and credit accounts.

However, even after seven years, if you have had a paid or settled collection, still counts as a black mark on your credit score. However, if a collection account is not paid or resolved within those seven years, the law mandates the credit bureaus to delete the information from your credit reports. At that stage, the unpaid debt cannot negatively affect your score, irrespective of the amount.

Methods of Deletion of the Collections Accounts from Credit

If a collection is removed earlier than seven years, it can assist in increasing the credit score so much. Here are some strategies that may work.

• Collection accounts - Clearing the balance may prompt the collection agency to ask credit bureaus to delete the records from your credit reports. However, they do not have to delete accurate information on paid or settled collection accounts legally.
• Dispute invalid collections – If you think that the collection account is fake, erroneous, vague, or old, and cannot remain valid, you may file a dispute with each of the credit bureaus that have reported it. When possible offer as much detail as one can and any written proof that may be available. The agencies are expected to investigate disputes within 30 days.
• Pay per delete – This is also a gamble but should be tried out – Payforit. You would then promptly communicate with the collection agency and come to an understanding in writing that you will pay the amount owed, and in return, the agency will request the credit bureaus to delete the record. Ensure the agreement is fulfilled first before making any payment.

It is important to note that repairing credit does not happen overnight but rather it usually is a slow process. However, the best way to avoid these lasting impacts on your credit scores is to pay collection accounts on time and regularly check your credit reports. The more positive credit behaviors that can be developed while at the same time avoiding negative behaviors, missed or late payments, and defaults, the quicker the collections can be offset and the credit score brought back up.

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