Question: I had several collections on my credit report. Some of them have fallen off now. What happens to them and what does it mean for my credit score? Kris N. Richland, WA
Mandi Woodruff, executive editor at MagnifyMoney, responds…
First, congratulations. One of the last things you want on your credit report is a collection account, so having some of them fall off your report is definitely a good thing. Also, good for you for monitoring your credit report and noticing they’re gone.
As you may know, the collections likely first appeared on your credit report because of unpaid debt. When your bills go unpaid, the debt is eventually sold to a collections agency and recorded on your credit report as a collection. In most cases, it’s there for seven years, or more specifically, seven years from the date your debt was originally 180 days overdue.
If you believe the collection is an error, you can dispute it, but if it’s legitimate, there’s not much you can do to remove it during that seven-year span. Even if you pay off the debt, the collection remains on your report unless you’re able to successfully reach a pay-for-delete deal with the collection agency.
Of course, one of the main concerns with having collections on your credit report is how much it affects your credit score, which lenders use to determine whether to grant you loans and determine the interest rate they offer if they do. Essentially, the lower your score, the fewer and less attractive financial choices you’re likely to have when it comes to buying a car, home or other items.
So, will the disappearance of these collections from your report send your score soaring? Unfortunately, probably not. How much it will boost your score depends on a variety of factors, but primarily on how much it was being dragged down by it.
A collection’s impact on your credit score depends on a range of factors, like the amount of the debt, your credit score to begin with, how old the debt is and which credit score is being used. Most lenders use the FICO score, produced by the Fair Isaac Corporation. However, there are various versions of FICO scores and the impact of collections varies between them. For example, the newest one – the FICO Score 9 – doesn’t ding consumers for a collection once it’s been paid off, while previous versions of the score do. The new version also dings you less if the collection is related to medical debt as opposed to credit card debt. Unfortunately, most lenders currently still use FICO 8 to evaluate consumers.
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With all versions, a collection’s impact on your credit score lessens over time, and by the time a collection nears the seven-year mark, it has the least impact. Therefore, its removal isn’t going to result in a huge increase in your score overnight. That doesn’t mean it’s not something to celebrate though, and this, in addition to good financial habits going forward, will definitely help raise your score over time.
Know also that just because a collection no longer appears on your credit report, it doesn’t mean calls and letters from collection agencies will necessarily stop if you still owe them money. While they can keep trying to collect the debt as long as they follow proper procedures as outlined in the Fair Credit Reporting Act (i.e. they can’t harass and abuse you), they can’t sue you for it indefinitely. Each state has a statute of limitations for various types of debt – typically three to six years – after which it’s considered to be time-barred debt and they can no longer sue you for it. That doesn’t mean they won’t try, but the law is on your side if they do.
So, if they can no longer sue you for a collection and it’s fallen off your credit report, that means a collections agency has little to no leverage when it comes to collecting this old debt. If any of your collections that have fallen off remain unpaid, it’s up to you to decide if you want to pay them off, but it’s important to know that in some cases, making even a partial payment on an old time-barred debt can reset the statute of limitations in some states. Many experts urge caution when paying off old collections, particularly if you could use those funds to pay current debt.
To stop a collections agency from contacting you further, you can send the collections agency a cease-and-desist letter. If they continue or if you ever feel like a collections agency is harassing or abusing you, contact your state attorney general’s office, the Federal Trade Commission or the Consumer Financial Protection Bureau.
So, as you can see, having some collections fall off your credit report won’t change your financial life overnight, but it’s certainly a step in the right direction toward a healthy financial future. It may also be encouraging to know that the remaining collections on your report will eventually fall off as well. In the meantime, do whatever you can to pay all your current bills on time to avoid any more collections in the future.