How Points Affect a Credit Score for Collections

Unpaid library fines and parking tickets might not seem like a major financial issue, but they can have lasting negative impact on your credit score. When creditors don't receive payments owed, they can turn accounts over to collection agencies. These agencies purchase your debt, sometimes at a discount, assuming responsibility for the recovery of the debt. Collection agency letters and phone calls can be intrusive and stressful; they can also affect your credit score in lost points.

Negative Impact

Having an account turned over to collections isn't going to help your credit score. In fact, your score can take a 100-point tumble after a collection agency reports that your account has been turned over to a third party. Negative items on your credit report remain for years, making it harder to land an apartment, get a loan, apply for credit cards or impress a potential employer. Bankruptcies remain on your credit report for up to 10 years; collections accounts and other negative information remains for up to 7.5 years.

Debt Length

Some consumers shy away from repaying accounts that have been turned over to collections because in the past, this well-intended action sometimes resulted in a lower score. That's no longer the case, so repaying an account that has been turned over to collections will eventually raise your score. Paying accounts reduces your overall debt-to-income ratio, boosting your credit score. Once your collection agency notation drops from your credit history, the score will continue to increase. Note that credit scores place heavier weight to new accounts compared with old accounts. Paying off an old account won't have the same positive impact; having an account recently turned over to a collection agency is bad news.

Posting

If you're paying off an account that's been turned over to collections, the payment may not post to your credit history for two months. During that time, your credit score won't be affected by the payment. Paying off a collections account doesn't eliminate the negative mark on your credit history, although the account will be marked "paid." You can try calling the collection agency after paying off the account to ask for the negative report to be removed. There's no guarantee that they'll agree, but it's worth a try.

Good Will

Your credit score may not show dramatic, positive results after paying down a collections account. Yet many lenders look at your overall credit history, not just the credit score. Sometimes making a payment to collection agencies demonstrates good will; lenders like to see that you're making an effort to address past mistakes. This can help counterbalance the negative marks remaining on your credit report.

Contest

Sometimes people don't make payments on past-due bills because they intend to contest the amount owed. Delaying payment can result in the account being turned over to a collection agency, drastically affecting your credit score. Depending on the amount owed, you might be better off paying the balance and then contesting the charge in hopes of a refund.