- If you fall behind on payments, your credit account may be sent to a collection agency or sold to a debt buyer
- You are still legally obligated to pay debts that are in collections
- Collections accounts can have a negative impact on credit scores
Past-due accounts that have been sent to a solicitation agency can be a source of confusion when it comes to your credit reports and credit scores. What does that mean ? And if you pay off the accounts, can they be removed from your credit reports ? We ’ ve broken down what you need to know .
What is a collection account?
If you fall behind on payments, the lender or creditor may transfer your explanation to a collection agency or sell it to a debt buyer. This by and large occurs a few months after you become delinquent, or the date you begin missing payments or not paying the full minimal payment.
typically, lenders and creditors will send you letters or call you regarding the debt before it is sent to a solicitation agency. You may not be notified if your account is being sold to a debt buyer, however. The collection agency or debt buyer will then attempt to collect the debt from you .
If your debt is sold to a debt buyer or placed for collection with a collection agency, you are still legally obligated to pay it. You may end up making payments directly to the solicitation means or debt buyer rather of the master lender .
Is a collection account different than a charge-off?
A charge-off means the lender or creditor has written the account off as a loss, and it is closed to future charges. The report may inactive be sold to a debt buyer. Paying the past-due total to the lender before it is sold may prevent a collections account from being reported on your credit reports ( assuming the lender reports to one or more of the three nationally credit chest of drawers ). In this case, your recognition reports may still have the charge-off report reported by your lender or creditor but may not have the extra account from the debt buyer.
What impact do collection accounts have on my credit scores?
A collection account may be reported to one, two or all three of the countrywide credit chest of drawers ( Equifax, Experian and TransUnion ) and reflected on your recognition reports. It can besides have a negative affect on credit rating scores, depending on the credit scoring model ( different ways credit scores are calculated ). Some recognition scoring models may ignore debt collections for smaller amounts – if the original debt was less than $ 100, for case. Some credit scoring models may besides treat unlike kinds of debt differently – for exemplify, medical bills versus derelict credit poster bills .
How long do collection accounts stay on my credit reports?
Like other negative data, a collection account can remain on your credit reports for up to seven years from the date you first miss a payment to the original lender or creditor .
What if I pay the debt?
If you pay the solicitation account, it should be reported to credit chest of drawers by the lender as paid, and would be listed as a paid solicitation. If you pay the account before the seven-year period is up, it can remain on your accredit reports, but its consequence on credit scores may lessen if it ’ south shown as pay, depending on the credit scoring model used. Some credit scoring models ignore paid collection accounts.
What if I believe the account information is inaccurate?
A good first step is to contact the lender or creditor. You can besides file a quarrel with the credit chest of drawers that furnished the reputation where the report is listed. To file a dispute with Equifax, you can create a myEquifax account. Visit our dispute page to learn other ways you can submit a challenge .
If you have a past-due debt
If you want to avoid having an report sent to collections, contact your lender or creditor to see if they will work with you on a requital plan or early arrangements. If your account has already been sent to a collection agency or sold to a debt buyer, contact that agency or debt buyer to see if they can help with a payment plan or colony sum .
The Consumer Financial Protection Bureau has more information, including information on negotiating a village .