How Much Do Collections Lower Your Credit Score?

Bills can go to collection agencies if they are not paid. Generally a lender waits about six months before turning accounts over to outside debt collectors, according to MSN Money writer Liz Pulliam Weston. First internal agents call you, asking for money and sometimes making settlement offers. After 80 days, the lender charges off the account for tax reasons and sells it to a collection agency. The collector badgers you for payment, dropping your credit score.

Impact

Your credit score is calculated based on a wide spectrum of financial information, according to the MyFICO scoring company. Collection accounts play a role, but so do many other things like your payment performance on non-collection accounts, balances, available credit, number and type of accounts and how long they have been open. Collection accounts are very negative, but their exact impact depends on your other information. Your score will probably drop into sub-prime territory, since collections are preceded by lengthy payment delinquency. MyFICO explains that late payments and collections fall under "Payment History," which is 30 percent of your score.

Time Frame

Collection accounts appear on your credit reports for a limited time. The Federal Trade Commission (FTC) website advises that most negative items, like late payments, collection accounts, repossessed cars and foreclosed homes, are erased by the Equifax, Experian and TransUnion credit bureaus in seven years. Your credit score comes from data on your reports, so collections lose their impact completely once they get removed. Erasure should happen automatically, but the FTC explains that you have a right to use annualcreditreports.com to check your credit reports at no cost and dispute outdated items with the credit bureaus if they still appear.

Settlements

Collection agencies pay less than face value for debts, so they will usually settle for a discounted amount as payment in full. Paid collections are just as bad for your score as unpaid accounts, according to Bankrate.com columnist Steve Bucci, so aim for removal when discussing a settlement with a debt collector. The agency can stop reporting the account to the credit bureaus, thus removing its influence on your credit score. Ask for a removal commitment in writing before paying the debt.

Considerations

Credit cards, loans, cell phone accounts and medical bills are not the only things that go to collection agencies. Pulliam Weston warns that some libraries turn book fines over to collectors, and cities often use private agencies to get payment for old parking tickets. These minor obligations impact your credit score as much as a credit card or loan in collections.

Disputes

Sometimes companies turn bills over to collection agencies if you refuse to pay for what you believe is a valid reason. For example, you might disagree on the amount owed to your former cell phone company. Pulliam Weston advises disputing such accounts with the credit bureaus, as they must eliminate challenged information if they do not validate it. Debt collectors sometimes ignore inquiries on old or small accounts.