Having a collection account can be a drag on your credit score. Here’s what to know about collection accounts and the impact on your credit.

When are collection accounts reported to the credit bureaus?

There is no rule requiring debt collectors to report a collection account to the three major credit bureaus. A collection account can be reported when a debt collector acquires the debt, or not at all. The statement is at the discretion of the collection agency.

Be careful if you are contacted by a debt collector for suspected debt you owe that is not on your credit report. If you don’t recognize the debt, ask for more information from validate the debt.

What is the impact of a collection account on your credit?

An account that ends up in collection may well have already damaged your credit. Late payments can drastically affect your score.

The impact of the collection account on your credit depends on your credit score range. A collection account will have a bigger impact on a credit score in the 700s than an account in the 500s.

Some newer credit scoring models ignore paid collection accounts or weight them less heavily. Overdue medical accounts are also treated less harshly than other overdue bills. However, most creditors still use old credit scoring models when making loan decisions.

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How long do collection accounts stay on your credit report?

Collection accounts will generally stay on your credit report for up to seven years from the date they became past due.

How do you manage a collection account on your credit report?

How you handle a collection account on your credit report depends on whether or not the account is correct.

If you determine the debt is yours

There are a few ways to deal with a debt collectionincluding paying off in full, making a payment plan, and settling debt for less than what is owed. If you don’t agree with the exact amount owed, settle it with the debt collector first. Be prepared to provide documents proving your case.

If it’s a mistake

If you are certain that the debt you are being asked to pay is in error – because you never owed it, you have already paid it, or some aspect of the reported debt is incorrect – take these two steps:

  • Notify the debt collector of the error and ask them to completely cease contact. Third party debt collectors who demand payment on behalf of a creditor must obey the Fair Debt Collection Practices Act. If he continues to harass you, file a complaint with the Consumer Financial Protection Bureau.

For both steps, gather all of the debt documents to help you make your case. Keep the original documents and send only copies.

About The Author

John R.

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