When you fail to pay a bill—like a credit card, medical, or utility bill—after a certain period (typically 90–180 days), the original creditor may:

  • Send it to an internal collections department or
  • Sell the debt collection agencyto a third-party collection agency

Once that happens, a collection account is added to your credit report.

📉 How Collections Affect Your Credit Score

  1. Negative Mark:
    A collection account is considered a major derogatory item. It signals to lenders that you’ve failed to repay a debt, which can drop your score by 50–100 points or more.
  2. Credit Age Impact:
    New collection accounts reduce the average age of your credit, further hurting your score.
  3. Duration on Credit Report:
    • Collections stay on your credit report for 7 years from the date of the original delinquency.
    • Even if you pay the debt, the collection may still appear—though paid collections are viewed more favorably.
  4. FICO vs VantageScore:
    • FICO 9 and 10 ignore paid collections entirely.
    • Older FICO models (used by many lenders) still count paid collections.
    • VantageScore 3.0 and 4.0 also ignore paid collections.

✅ How to Minimize the Damage

  • Pay Off or Settle the Debt: Request the agency removes the collection in exchange for payment (a “pay-for-delete” agreement).
  • Dispute Errors: If the collection is inaccurate or not yours, dispute it with the credit bureaus.
  • Request Validation: You can ask the collector to prove the debt is valid and that they have the right to collect it.
  • Monitor Your Credit: Use free tools or paid services to track changes to your credit.