Does an Incident With the Collections Agency Go on Your Credit

Collections agencies can go after any outstanding debt, even one less than $100, and report to the credit bureaus. Avoid a collections account if possible because they can destroy even the best of credit scores. It is possible to remove a collections account from your record but not by dealing with any debt collector.

Identification

If a creditor refers your account to a collections agency it will often appear on your credit report because the credit bureaus actively search public databases for notification of a collections account. Unless you already have bad credit with multiple collections accounts, an account reported in collections will probably lower your credit rating by 100 points or more.

Misconception

Debt collectors are not just for credit cards. Anybody you owe money to can send the bill to a collections agency. Even minor infractions, such as fines from forgetting to return a library book or a parking ticket can be reported. Small items like these could cost you thousands when you apply for large loans, such as a mortgage or auto loan.

How Long Will it Affect Your Credit?

Outstanding accounts will affect your credit for seven years, even if you pay them off. The status of a collections account, whether open or paid, has no affect on your credit score. The date a collections account falls off a record depends on when the creditor reports it as delinquent, not when you took the loan or received the fine.

Tip

You might be able to remove a collection account from your report before the seven-year time limit by negotiating repayment. Only the original creditor, however, has the authority to do this. Consider offering to pay the debt to the original creditor if he disputes the account with the credit bureaus. Make sure to get in writing that the account will be reported as "paid as agreed" to force the company's hand before settling the debt.

Warning

Before paying any debt, review your state's laws on debt collection. You do not have to pay a debt after a certain number of years, usually four to six. Paying an old collections account, while ethically right, will reaffirm the debt and restart the clock on the account.