How Collections Accounts Can Affect Your Credit (And What You Can Do)

By Jackie Beck   Updated 08/23/2021 at 12:17 pm

In this article, we’ll go over everything you might want to know about collections accounts — especially if you’re aiming for debt freedom.

Let’s start with a quick definition, and then answer many of the common questions.

What Are Collections Accounts?

Collections accounts are past-due debts that got sent to a third party to collect. This third party (usually a collection agency) then continues to try to get you to repay all or part of what you owe.

These debt collectors must follow the Fair Debt Collection Practices Act. You can file a complaint or even sue them if they don’t.

So if you have a valid debt in collections, it means that:

  1. You didn’t pay as agreed for a long enough period of time. (Or sometimes as in the case of medical debt, you may not have even known you owed it.)
  2. The original company you owed the money did a charge-off. That’s an accounting term that means they show the debt as a loss on their books. (Because they believe they will never be able to collect from you.) If the charge off your debt you can’t use the account any longer. But you do still owe the money.
  3. The original creditor assigned or sold the debt to someone else whose main job is to collect debts. That someone can be in-house or with a different company.

In other words, your charged-off debt is now with a debt collector.

Once it’s sent to a debt collector…

Once it’s sent to a debt collector like that, it will usually show up as another, extra account on your credit report.

Why? Because your credit report will show your payment history with the first creditor. Then it will also show the new company that has the debt now. This will be under a “Collections” heading. It should also show the original creditor information so you can see where it came from.

You can check how it appears by copy of your credit report. Here’s how to do so for free. It’s a good idea to check this at least ones a year for mistakes.

Your credit score will also take a hit.

How Long Before a Debt Goes to Collections?

You can usually stop a debt from going to collections by making payment arrangements (that you keep!) with the place you owe money to before it gets to that point. But if you can’t do that, the time it takes before a debt goes to collections depends on the type of debt.

For installment loans, it usually takes 120 days of not paying as agreed. (Mortgages and car loans are two kinds of installment loans.)

For revolving debt, such as credit cards, it usually takes 180 days.

And finally, for medical debt, it ranges from 30-180 days before a debt goes to collections. 30 days isn’t much time, especially considering the complex medical billing processes. And according to the CFPB, a “staggering 52 percent of all collection accounts on credit reports are medical.”

So chances are if you have one that’s sent to collections, it’s medical-related.

What Happens if a Debt Goes to Collections?

A debt collector will try to get you to pay. They will call you, and maybe text, email and write you as well. The calls may be very vague. They will usually refuse to tell you anything until they confirm who they’re talking to. This is because they aren’t supposed to talk to anyone but you, your spouse, or your attorney about the debt.

If you still don’t pay it, you might get sued. (As long as the statute of limitations has not expired.) If you get sued, show up in court, even if you can’t pay. And if you don’t show up, they will win by default.

If you get a call from a debt collector, get their name & company name, address, and phone number. Then do not agree that the debt is yours. Ask them to validate the debt instead. Keep a record of the date and times of any calls, and notes on what you talked about.

Validating the debt means that they have to tell you:

  • how much the debt is,
  • who you owe it to now,
  • and how to get the name of the original creditor.

Don’t agree to anything at all until you know for sure that the debt is yours and that you still owe it. You can dispute it if you think you don’t owe it. Get any agreements in writing.

Note that some states have banned collections for some kinds of debts for a time due to the coronavirus. Check with your state to see if that applies to you. You can also do some things to stop collectors from harassing you. (And they shouldn’t threaten you!)

What Happens for Past-Due Medical Debt?

At its most basic level, the same as with any other debt: when a medical bill goes to collections a debt collector will try to get you to pay. But there’s some good news when it comes to medical bills going to collections.

As of 2017, Experian, Equifax and TransUnion agreed not to put medical debts on credit reports until the bills are least 180 days past due. So while a medical debt still could go to a collections agency very quickly, it should stay off your credit report for 180 days. That gives you more time to get things taken care of, agree to a payment plan, or fix any errors.

If insurance pays your medical debt, it should come off your credit report. You can ask the credit reporting agencies to remove it if it hasn’t. (They agreed to remove them as part of the National Consumer Assistance Plan.)

Unpaid medical debts stay on your credit report for at least 7 years. And like other unpaid debts, they can have a negative effect on your credit score. For FICO 9 and VantageScore 3.0 and 4.0, having a medical debt in collections isn’t quite as bad as having another type of debt in collections.

For example, if the original medical debt was less than $100, FICO 9 doesn’t take it into account. But there are MANY different scoring models. So if you’re trying to borrow money and the lender uses one of the older ones like FICO 8, it will still have an impact. FICO Score 8 is one that treats all debt the same. In that case, a medical debt in collections would be the same as any other debt score-wise.

When Do Collections Get Reported to the Credit Bureaus?

Getting sent to collections is not the same as getting reported to the credit bureaus. The first is an effort to collect the debt; the second is a report of what’s happening.

Except for medical debt, there’s no set timeframe for a collections agency to report what’s happening to the credit bureaus. They can report it as soon as they want to after they get the account, since the bills are already 30 or more days late.

(As mentioned above, medical debts don’t get put on your credit report until they’re at least 180 days past due.)

On a related note, chances are high that the original creditor also reported late payments before the debt got sent to collections. Usually payments that are more than 30 days late get reported once a month. So those are negatives too.

You do have 30 days to dispute the debt in writing with the collector, but they may still have already reported it. Of course if it is not yours you should be able to get it taken off.

How Do Collections Affect Your Credit?

The way that collections affect your credit depends in part on who is looking at it and what they are checking.

For example, if a landlord looks at your credit report, they will likely see them as a bad thing, especially if they are recent. Why? Because it’s proof that you did not pay the debt as agreed, for whatever reason.

If someone checks your credit score, it will depend what credit score they check. Both paid and unpaid collections accounts can have a negative effect on your credit score. Unpaid ones usually drop your score more than paid ones, especially if they are recent. FICO 9 and VantageScore 3.0 and 4.0 don’t count paid ones against you, but FICO 8 (a commonly used scoring model) does.

So how many points does a collection drop your credit score?

It’s going to depend on a whole lot of things:

  • Your exact situation and credit history
  • What credit scoring model is being used
  • How recent it is
  • In some cases, whether it’s a paid or unpaid collection
  • And sometimes what type and amount of collection it is (medical or not, over $100 or not)

In general though having a collection can drop your score by as much as 100 points if it’s just happened. As it gets older it will have less of an effect.

If you want to get a better idea of what may happen based on some FICO scores, you can use this estimator to try out different cases.

How Long Do Collections Accounts Stay on Your Credit Report?

In general both unpaid collections accounts and paid collections accounts can stay on your credit report for up to 7 years. The 7 years starts 180 days from the date they went past due and were not brought current. (So it ends up being 7 years plus 180 days.)

But US government insured or guaranteed student loans and national direct student loans that have gone to collections can stay on there longer. You can read more about how the Fair Credit Reporting Act handles these.

What If I Pay In Full or Settle?

If you pay off a collections in full, it will show as paid in full on your credit report.

If the creditor agrees to settle for less than the full amount you owe (in writing!) and you pay that lower amount, it will show as “settled” or sometimes as “account paid in full for less than the full balance.”

For settlement agreements, the FTC says it “should state that the entire debt is being settled and that the amount to be paid will release you from any further obligation.” If the amount forgiven is $600 or more, you’ll get a 1099-C tax form. That’s considered taxable income.

There’s no set percentage that a debt collector will settle for, but a few will settle for as little as 30%.

Whether it’s paid in full or settled, the collection normally stays on your credit report. It’s a history of how you have handled debt, and that is part of your history.

But sometimes you may be able to do what’s called a “pay for delete”. That’s where you get the creditor to agree ahead of time (again, in writing!) to delete the collections from your credit report in exchange for you paying all or part of it. If that happens, they’ll remove it from your credit report.

Note that if you make partial payments without an agreement to settle for less, it can restart the statute of limitations for the debt. The same is true if you agree that it’s your debt but don’t pay it. Restarting the statute of limitations gives them more time to try to collect what you owe. How long the statute of limitations is depends on the state and the kind of debt.

Will Paying It Off Improve Your Credit Score or Hurt It?

According to, “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.”

In other words, it depends — usually on the same kinds of things that would affect how many points the collection drops your credit score. So there’s no set number of points your credit score may increase.

But here are a few possible benefits of paying them off:

  • If someone pulls your credit score using one of the newest credit scoring models, the paid collection will no longer hurt your score.
  • No longer having that debt hanging over your head

If you do pay one off, be sure to keep the paperwork and proof that you’ve done so for the rest of your life. Don’t take the chance that someone tries to collect on the same debt again in the future and you have no proof.

It may take a few months for the change to show if your credit score does improve as a result of paying them off.

So Is It Better to Pay Off Collections or Wait for Them to Drop Off Your Credit Report?

The answer to this depends in part on your goals and what you’re hoping to have happen.

If the debt is time-barred (meaning it’s so old the statute of limitations have expired) then they can no longer sue you for it. Collectors can still contact you to try to collect it though unless you tell them in writing to stop.

If the collections is recent, it likely affects your credit score by a lot. In that case paying it off could bring your score up a bit.

If you’re trying to get a mortgage, for example, the mortgage company may make you pay old collections. If they’re very old and about to fall off your credit report, you may want to wait before applying for a mortgage.

Finally, if you’d just plain feel better paying what you owe, that’s a factor too.

How Do You Get Collections Off Your Credit Report?

Sometimes you can get collections (paid or unpaid) removed from your credit report. There are 4 main ways to do this. You can:

  1. Try using a a pay for delete letter (as mentioned above)
  2. Write a goodwill deletion letter and hope that they will do it
  3. Show that it was a medical bill paid by insurance, since they must remove it in that case
  4. Dispute it if it’s not correct or not yours

No matter how you decide to handle collections, make sure you know your rights. You can learn more about those in the Fair Debt Collection Practices Act.

What you can do about collections; jar of coins spilled over medical bill

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