If you start receiving collection notices, you might worry about how the overdue account will affect your credit. Nearly everyone has an account that goes to collections at some point in life, so you are not alone in wondering how much collections affect your credit score and what you can do to minimize the impact.
When faced with collections, the critical thing to remember is to stay calm and address the issue rather than ignore it. From the financial experts at Western Shamrock, here’s our answer to the question, “Does debt collection affect credit score?”
What is a Collection Account?
When you miss paying a bill, and the account becomes overdue, the creditor will attempt to collect money through multiple billing attempts. If you do not respond or pay the bill, it may eventually go to an in-house collection department or a third-party debt collector.
At this point, the account is marked in “collection status” on your credit report. After 180 days, it is common for creditors to send unpaid accounts to a collection agency.
When are Collection Accounts Reported to Credit Bureaus?
What is collections on a credit report, and when are credit bureaus notified?
There is no official reporting requirement, so it is up to individual debt collectors to notify the major credit bureaus if or when they choose.
However, debt collectors must attempt to reach you by phone, letter, electronic communication, or in person before reporting anything to a credit bureau. They must wait at least two weeks following electronic and postal mail communications to ensure that debt notices are not returned as undeliverable. There is a 180-day waiting period for reporting unpaid medical debt.
Impact of Collection Accounts on Credit Scores
The answer to “Do collection agencies affect your credit?” is yes, but a better question is how much they impact it.
As a general rule, medical accounts have less impact on credit scores than other overdue bills. A higher credit score in the 700s will be more impacted than a lower credit score in the 500s. This is because the collection stands out significantly on an otherwise good score and indicates a heightened risk to creditors.
Duration of Collection Accounts on Credit Reports
How long do collections stay on your credit report, and how long does a collection stay on your credit history?
Accounts in collections will typically stay on a credit report for up to seven years. That amount of time is calculated from the delinquency date of your original debt or first missed payment. If your credit score doesn’t automatically bounce back after seven years, you can dispute it as an error to have it removed. Only medical debts of $500 or more will appear on your credit report.
Handling Collection Accounts on Your Credit Report
Before assessing how much does collections affect credit score, confirm that the debt is accurate and legitimate. Debt collection is federally regulated, and debt collectors must follow the proper steps to collect money from you.
Ensure you are working with a legitimate collection agency and not a scammer by asking for the agency’s name and amount owed, then cross-referencing that information with your creditor. If there is a disagreement on the amount owed, settle this with the debt collector before establishing a payment plan or making a first payment.
Depending on the arrangement you agree on with the debt collector, you may be able to pay off the debt in full, set up monthly payments, or settle the debt for less than owed. Upon paying off the entire debt, you can politely ask the debt collector to remove the collection, which is known as a “goodwill deletion” and is worth a try. You can also request a “pay-for-delete” arrangement by getting written confirmation from the debt agency that they will delete the collection when you send payment.
How Collections Affect Different Types of Debt
Do collections affect your credit in different ways based on the type of debt?
Yes, especially when comparing medical debt vs. other consumer debts. Medical debt carries less weight in collections than debt for loans, credit cards, utility bills, and government fees.
Strategies to Prevent Collections
Does paying off collections improve credit score? Yes, but it might take seven years to get back to where you were before collections. Fortunately, there are many ways that you can prevent collections from happening in the first place:
- Create a budget to keep track of due dates
- Find ways to reduce monthly bills
- Look into getting assistance with burdensome bills
- Pick up side gigs to earn extra money
- Take out a personal loan to pay bills
- Periodically check your credit reports to reduce fraud risks
Mitigating the Impact of Collections on Credit Scores
How much will credit score increase after paying off collections? The amount your score bounces back depends on many factors, but you can improve your credit score even while having an account in collections.
For example, you can make timely payments on other debts, keep low credit card balances, and avoid unnecessary credit applications. Once you pay off your account in collections, you’ll have peace of mind without harassing communications from debt collectors and avoid potential lawsuits due to money owed. Yes, debt collection affects credit score, but the impact is temporary, and there are many ways to get back on a good financial track.
This information is general debt collection information for any accounts in collections. As the original creditor, Western Shamrock’s procedures are different. If you receive past due notices from Western Shamrock, please contact your branch office as soon as possible to work out arrangements. If you want to learn more about how a personal loan can help you consolidate and manage your debt with other creditors while paying your bills on time, please contact Western Shamrock or visit your local branch.
