How Much Do Negative Collections Hurt Your Credit Score?

Your credit score uses many different factors to get the consolidated score lenders use to check your credit worthiness. A collection account on your credit report is placed there by a collection agency who is hired to retrieve a delinquent debt. A collection account always has a negative effect on your credit score, but the severity of the impact depends on the overall credit profile.

Factors Affecting Credit

Credit scores are compiled using the different credit accounts on your credit report. According to MyFICO, five general factor categories are used in producing the credit score. These categories are payment history, account balances, credit history length, new credit and the different types of credit accounts. Negative collections fall under the payment history factor, as the negative accounts denote accounts so far past due that they were charged off and sent to collections.

Collection Process

The first notice that you'll have of the collection account is a written notice from the collection agency informing you about the account, and explaining your rights in disputing or verifying this account. The collection agency may have already put the collection on your credit report at this point, or it may wait until later to report the collection.

Time Period

Collections that have been included on your credit report several years ago affect your credit score less than those that have recently been added. The range of severity is due to a factor that MyFICO calls "time since past due items," counted under the payment history factor. Another factor that reduces the impact of individual collections is if you have many negative accounts on your credit report. Each individual collection does not have as large of an impact on the credit score compared to a report with a single collection, although the overall reduction of score is high in aggregate.

Re-establishing Credit

If you have a positive payment history following the collection account, your score will start to trend upwards. The only way to completely negate the effects of a collection account is to get it removed from your credit account complete, either by negotiating with the collection agency or by waiting seven years for the collection to drop off of your account.