How Many Points Is a Collection on Your Credit Report?

A collection account represents a significant hurdle for consumers maintaining a positive credit history. When a debt remains unpaid for an extended period, the original creditor may sell or transfer it to a third-party collection agency. This typically creates a collection account on an individual’s credit report, signaling to future lenders a past inability to manage financial obligations. Understanding the implications of these accounts, including their impact on credit scores and reporting timelines, is important. This article explores how collection accounts affect credit standing, how long they remain visible, and steps consumers can take to address them.

Understanding Collection Accounts

A collection account signifies a debt an original creditor deemed uncollectible and sold or assigned to a collection agency or debt buyer. This transfer occurs after a consumer fails to make payments for a prolonged period, often 120 to 180 days past the due date. The original creditor typically “charges off” the debt as a loss before it reaches a collection agency.

Missed payments lead to an account becoming delinquent. After internal collection efforts fail, the original creditor transfers the debt to a specialized collection entity. These entities can be third-party collection agencies or debt buyers who purchase the debt for a fraction of its face value.

Collection accounts can stem from various debts, including medical bills, credit card balances, utility bills, and personal loans. Even debts not typically on a credit report, like some utility or medical bills, can become collection accounts and be reported. Once reported, a collection account appears as a distinct entry, separate from the original account.

Each collection entry lists the collection agency, original creditor, current balance, and the date opened or reported. It also shows the payment status (unpaid, paid, or settled). This information allows credit bureaus and lenders to assess the delinquent debt.

How Collections Impact Your Credit Score

A collection account does not result in a fixed “point” deduction from a credit score; its impact varies considerably. Credit scoring models are complex, and the precise reduction is not publicly disclosed. However, a collection account is a significant negative event that can substantially lower credit scores, particularly for those with a strong credit history.

The recency of a collection account is a primary factor influencing its severity. Newer collections have a more pronounced negative effect than older ones. As a collection ages, its impact gradually diminishes, even while remaining on the report. This reflects that recent financial behavior is a stronger indicator of future risk.

While the original balance does not directly translate to a specific point deduction, larger balances might suggest more significant financial distress, contributing to a greater negative impact. Other negative marks also play a role; a collection on an otherwise clean report will likely cause a steeper drop than on a report already containing multiple delinquencies.

The payment status of the collection also affects its impact, though even a paid collection remains a negative mark. Newer credit scoring models, such as FICO Score 9 and 10 and VantageScore 3.0 and 4.0, weigh paid collections less heavily, and some may ignore them. For instance, VantageScore 3.0 and 4.0 disregard all paid and medical collections. National credit bureaus no longer list paid medical collections or unpaid medical collections under $500, meaning they do not affect credit scores.

FICO Score 8, a widely used version, treats paid and unpaid collections (for debts over $100) similarly, both negatively impacting the score. Despite scoring model variations, any collection account signals increased risk to lenders, making it challenging to obtain new credit or favorable interest rates. The impact can be severe for those with high credit scores prior to the collection, potentially leading to a drop of 100 to 200 points or more.

How Long Collections Stay on Your Credit Report

Collection accounts, like most negative information, generally remain on a credit report for seven years. This period is calculated from the date of the original delinquency, not when the collection agency first reported the debt. The original delinquency date refers to the first missed payment that led to the account being placed for collection and never brought current.

Even if a collection account is paid off or settled, it does not automatically get removed before the seven-year period concludes. Paying the debt simply updates the status from “unpaid” to “paid” or “settled,” which some lenders and newer scoring models view more favorably, but the negative record persists. The original and associated collection accounts are typically removed at the same time, seven years from the initial delinquency date.

The concept of “re-aging” is illegal under the Fair Credit Reporting Act (FCRA). A collection agency cannot restart the seven-year reporting clock by purchasing the debt, making a new payment arrangement, or manipulating the date. The clock is tied to the original delinquency date, ensuring negative information eventually falls off a consumer’s report.

To determine when a collection account will fall off, consumers should identify the original delinquency date. This date is generally available on the credit report. If there is any discrepancy or uncertainty, consumers have the right to dispute the information’s accuracy with the credit bureaus.

Strategies for Addressing Collection Accounts

Addressing collection accounts on a credit report involves several strategies, depending on the accuracy of the information and the consumer’s financial situation.

Disputing a Collection Account

Disputing a collection account is an initial step if a consumer believes the information is inaccurate or unverifiable. Valid reasons include the debt not belonging to the consumer, an incorrect amount, prior payment, or identity theft. Before initiating a dispute, gather all relevant information: account number, collection agency name, original creditor, and supporting documentation. Contact information for Experian, Equifax, and TransUnion is available on their websites, which offer online dispute portals.

Once information is assembled, a dispute can be formally submitted. This can be done through credit bureaus’ online dispute portals, which guide consumers and allow document uploads. Alternatively, send a dispute letter via certified mail with a return receipt.

After submission, the credit bureau must investigate within 30 days, forwarding information to the furnisher (collection agency or original creditor). The furnisher investigates and responds to the credit bureau, which then notifies the consumer of results. If inaccurate or unverifiable, the information must be removed or corrected.

Paying Off or Settling a Collection Account

Deciding whether to pay a collection account in full or settle for less depends on individual circumstances and financial capacity. Paying in full updates the credit report to a “paid” status, generally viewed more favorably by lenders than an unpaid collection. Settling for less also results in a zero balance, reported as “settled for less than the full balance.” While better than unpaid, it may carry a slightly greater negative connotation than “paid in full.”

Regardless of the path, obtain any payment agreement, especially a settlement, in writing before making payment. This written agreement should state the agreed-upon amount, confirm payment satisfies the debt, and ideally include an agreement to update credit bureaus.

After securing a written agreement, payment can be made through various methods, such as online payment or mailing a check. Maintain meticulous records of all payments, correspondence, and the written agreement for future reference. Once processed, monitor credit reports to ensure the collection account status is updated accurately. While paying off a collection does not remove it before the seven-year reporting period expires, it signals to future creditors that the debt has been addressed.

Understanding “Pay-for-Delete” Agreements

A “pay-for-delete” agreement is a negotiation where a collection agency agrees to remove the collection entry from a credit report in exchange for payment, in full or a partial amount. While appealing, these agreements are rare and not legally binding on credit bureaus, as the Fair Credit Reporting Act (FCRA) requires accurate reporting. Collection agencies are generally not obligated to agree, and credit bureaus discourage the practice.

If a collection agency agrees to a pay-for-delete, get this agreement in writing before making any payment. The written agreement should explicitly detail the terms of removal from the credit report. After receiving the agreement, make the payment as stipulated. Following payment, vigilantly monitor credit reports from all three major bureaus to ensure the collection is removed. However, due to the unofficial nature and limited enforceability, there is no guarantee the collection will be deleted, even with a written promise.