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Although paying off accounts in collections is generally a good idea, it won't immediately wipe the collection account from your credit report. Even if you pay it, a collection account stays on your credit report for seven years from the date you first missed a payment. However, once you pay off the debt, it will show as paid when your credit report is updated—typically within 30 days of you making the payment. Paid collection accounts typically have less negative impact on your credit score than unpaid ones.
Do I Need to Notify the Credit Bureaus of Paid Collections?
No, you don't need to notify the credit bureaus of paid collections. Once you pay off the debt, the collection agency should alert the three major consumer credit bureaus (Experian, TransUnion and Equifax), which will update their records. Updating records typically takes a month or so; at that point, the collection account's status should change to "paid."
However, it will still take seven years from the date your account first became delinquent for the paid collection account to come off your credit report. If you had extenuating circumstances that led to a delinquent payment, you can request what's called a goodwill deletion. Call or write to the collection agency asking to have the account deleted as a gesture of goodwill. The collection agency doesn't have to comply, but there's no harm in asking.
You may have better luck getting a goodwill deletion if you have a history of on-time payments to the original creditor. When requesting a goodwill deletion, emphasize your otherwise positive credit history and explain any unusual circumstances behind the missed payments, such as a lengthy illness, job loss or natural disaster.
How Do Collections Affect Credit?
The impact of collections on your credit varies depending on the type of debt involved and the credit scoring model a lender uses. For example, the most recent versions of the FICO® Score☉ (FICO® Scores 9, 10 and 10 T) and the VantageScore® (versions 3.0 and 4.0) disregard all paid collections.
Whether paid or unpaid, medical collections under $500 won't appear on your credit report or impact your credit score. Unpaid medical collections balances of $500 or more may negatively affect your credit score. However, FICO® Scores 9 and 10 lower your scores less for these unpaid medical collections than for non-medical debt.
Although the impact of unpaid collections is reduced in newer credit scoring models, many lenders still use older credit scoring models that take paid collections into account. For example, credit card issuers frequently use FICO® Score 8, which lowers your score if you have paid or unpaid collections of $100 or more. Many mortgage lenders use FICO® Score 2, FICO® Score 4 or FICO® Score 5.
It's impossible to know in advance which credit scoring models lenders may use when you apply for credit. You can minimize the negative impact of non-medical collection accounts over $100 or medical collection accounts over $500 by paying off the debt.
How Long Do Collections Stay on Your Credit Reports?
Whether you pay them or not, collection accounts are removed from your credit report seven years from the date your debt to the original creditor first became delinquent. Generally, creditors report your missed payment to the credit bureaus after one billing cycle (usually 30 days) passes without a payment.
When the creditor gives up on collecting from you—typically after 120 days without payment—they may sell your debt to a collection agency. If that collection agency can't collect either, they may resell your debt to another agency. Ultimately, your credit report could show several collection accounts, all originating from the same unpaid debt.
Example:
- May 1: Your personal loan payment is 31 days late; your account is now delinquent.
- September 2: The lender charges off your account, reducing the balance to $0, and sells the debt to Collection Agency A. A new collection account shows up on your credit report.
- January 4: Collection Agency A still hasn't collected payment and resells your debt to Collection Agency B.
There are now two collection accounts on your credit report. Fortunately, you don't have to wait seven years from September 2 for the first account to drop off and seven years from January 4 for the second one to disappear. Since all the collection accounts are related to the same original debt, they'll all drop off your credit report seven years from May 1—the date the original debt became delinquent.
How to Remove Inaccurate Collections From Your Credit Report
What if a collection account remains on your credit report as "unpaid" several months after you paid it? Here's how to remove inaccurate collections information from your credit report.
1. File a Dispute With the Credit Reporting Agency
First, you have the right to file a dispute with the relevant credit bureau. Here's how:
| Dispute Method | Experian | TransUnion | Equifax |
|---|---|---|---|
| Online | Dispute website | Dispute website | Dispute website |
| By mail | Experian P.O. Box 4500 Allen, TX 75013 | TransUnion Consumer Solutions P.O. Box 2000 Chester, PA 19016-2000 | Equifax Information Services LLC P.O. Box 740241 Atlanta, GA 30374 |
| By phone | 855-414-6048 | 800-916-8800 | 888-378-4329 |
When filing a dispute, explain the error and provide any supporting evidence, such as a canceled check or a bank statement showing payment. The Consumer Financial Protection Bureau has guidance for filing disputes and a template you can use to write letters. Keep copies of any documents you send.
2. Contact the Collection Agency
Next, you have the right to contact the collection agency to dispute the incorrect information. If they agree there's an error, they're responsible for sending correct information to the credit bureaus.
If the collection agency determines that they aren't in error, you have the right to ask the credit bureau to include a statement of dispute in your credit report, explaining that you dispute the collection account and why.
3. Contact the Original Creditor
In some cases, you may need to contact the creditor who sold your debt to the collection agency in the first place. If they determine the debt went to collections by mistake, they can contact the collection agency and try to resolve the issue.
How to Improve Your Credit When You Have Collections
Accurate collection accounts can't be removed from your credit reports until they legitimately expire in seven years. However, you don't have to wait that long to start improving your credit. In addition to paying unpaid collection accounts, here are some steps to take right away.
- Dispute any inaccuracies on your credit reports. You can get your credit reports from all three credit bureaus at AnnualCreditReport.com for free. Check for other inaccuracies and, if you find them, you have the right to dispute them with the credit bureau.
- Pay your bills on time. Because payment history is the most important factor in your credit scores, late or missed payments can have a major negative impact. Consider setting up automatic bill payments so you won't miss upcoming due dates.
- Reduce your credit card balances. Credit utilization ratio, or your amount of outstanding credit card debt compared with your total credit limit, is a big element in your credit score. Aim to keep credit utilization below 30%; ideally, keep it under 10%.
- Avoid applying for new credit. Each application for credit creates a hard inquiry that can temporarily lower your credit score by a few points. New credit cards may also tempt you to spend beyond your budget, which could hurt scores.
- Don't close unused credit cards. Even if you no longer use a credit card, keeping the account open can benefit your credit score. Closing unused credit cards reduces your available credit, which may increase your credit utilization ratio. This can lower your credit score.
The Bottom Line
Collection accounts on your credit report can have a lasting impact, but there are steps you can take to minimize their effects. Another move that could improve your credit score is signing up for Experian Boost®ø. Experian Boost is a free feature that adds your on-time payments for things like eligible rent, utilities, phone, internet and streaming services to your Experian credit report, so timely payments could boost your credit score.
