Does Disputing a Collection Hurt Your Credit?

A collection account represents a debt that has gone significantly unpaid, typically for at least 120 days, leading the original creditor to either sell the debt or assign it to a third-party collection agency. This negative mark on a credit report signals to potential lenders that a borrower has failed to meet their financial obligations. Many individuals faced with such an entry often wonder if challenging its accuracy, a process known as disputing, could further harm their credit standing. Understanding collection accounts and the dispute process is important for credit health.

How Collections Impact Credit

A collection account appearing on a credit report can significantly reduce credit scores, as payment history is a primary factor in scoring models like FICO and VantageScore. This occurs because the presence of a collection indicates a previous delinquency, signaling increased risk to creditors. The severity of the impact depends on factors such as the age of the collection, the amount owed, and the overall credit profile of the individual.

Collection accounts generally remain on a credit report for seven years from the date of the first missed payment that led to the collection, not from when the account went into collection. Even if paid, it typically remains on the credit report for this seven-year period, though its negative effect may lessen over time. Newer credit scoring models, such as FICO 9 and VantageScore 4.0, may ignore paid collections or treat them less harshly, but many lenders still use older models where even paid collections can affect scores.

The Credit Dispute Process

Initiating a dispute for a collection account begins with thorough information gathering. Before contacting credit bureaus, collect relevant documents such as account numbers, creditor names, dates, and any proof of payment or identity theft. Accessing free weekly credit reports from Experian, Equifax, and TransUnion helps identify and verify the collection entry.

Disputes can be initiated online through the credit bureau websites or by mail using a dispute letter. While online disputes are convenient, sending a dispute letter by certified mail provides a useful paper trail. The dispute communication should include personal information, disputed account details, the reason (e.g., inaccuracy, not yours), and the requested action (removal or correction).

Once a dispute is filed, credit bureaus are required by the Fair Credit Reporting Act (FCRA) to investigate. They typically have 30 days (up to 45 days if additional consumer information is provided) to investigate by contacting the data furnisher, usually the collection agency or original creditor. If the data furnisher cannot verify the accuracy of the information within this time, the item should be removed from the credit report.

Credit Impact During and After a Dispute

During the investigation period, the disputed collection account may be marked as “in dispute” or “under investigation” on the credit report. This notation does not harm the credit score, as it signifies accuracy is under review. The credit bureaus must notify the consumer of the investigation’s outcome within five business days after its completion.

The long-term credit impact depends on the resolution of the dispute. If the collection is verified as accurate by the data furnisher, it will remain on the credit report and continue to negatively affect the credit score for its seven-year reporting period. Conversely, if the collection is found inaccurate, outdated, or unverifiable and is deleted, this is the most favorable outcome, improving credit scores.

In some cases, certain details might be corrected or updated, while the account remains on the report. While an updated entry is better than an uncorrected error, the negative impact may still persist. Disputing a collection does not inherently harm credit; rather, the ultimate outcome determines the effect on credit.