Can Debt Collections Less Than $100 Be Reported to the Credit Bureau?

When you don't pay off a balance that you owe and your debt isn't secured by collateral, your creditor has little choice but to turn the debt over to a debt collector. Not all unpaid debts turned over to collection agencies amount to hundreds --- or even thousands --- of dollars. Creditors also turn over smaller debts, such as library fines, to collection agencies for recovery.

Facts

Most debt collection agencies report consumer accounts to the credit bureaus. No law restricts collection agencies from reporting all of their accounts --- even small ones. Thus, even if a debt seems insignificant, if a creditor turns it over to a collection agency, there's a good chance that the debt will end up on your credit report.

Significance

The purpose of FICO scoring is to provide lenders with a risk assessment tool with which to evaluate credit and loan applicants. Large collection accounts have a significant derogatory effect on an individual's credit scores because they indicate financial irresponsibility. A small collection account, however, is much more likely to result from a debt a consumer forgot about or wasn't aware of rather than one he simply couldn't manage. The FICO '08 credit scoring formula, released in early 2009, doesn't include collection accounts for debts less than $100 when calculating consumer credit scores.

The lack of a credit penalty for small collection accounts prevents lenders from considering you a greater risk than you actually are based on your credit scores. Lenders still see the collection account on your credit report, however, and take it into consideration.

Time Frame

A collection account remains on your credit report for the full amount of time mandated by the Fair Credit Reporting Act (FCRA), regardless of how much you owe. The FCRA dictates that credit bureaus must remove the debt from your credit report exactly 7 1/2 years from the date you made your last payment to the original creditor. You have the right to dispute the account with the credit bureaus if you suspect it's incorrect. A successful dispute results in the credit bureaus removing the collection from your report before the reporting period on the account expires.

Considerations

Although collection debts less than $100 don't impact your credit scores, they're often more difficult to remove from your credit history. Individual debt collectors work on commission; this provides them with incentive to do whatever is necessary to convince you to pay. Some debt collectors agree to remove collection accounts from your credit files in exchange for payment. Unfortunately, when the debt is small, a debt collector has little incentive to modify your credit history if you agree to pay off your debt.

Warning

Collection accounts that start off small can grow over time. If your agreement with the debt's original creditor permitted it to charge interest on the debt, the Fair Debt Collection Practices Act allows the collection agency to also add interest charges to the unpaid balance. Thus, a debt for less than $100 can grow to exceed $100 if you don't pay it off. Once the debt exceeds $100, it severely damages your credit rating --- and paying off the debt doesn't change this fact.