How Do Collections Affect Your Credit?

If you have a collection on your credit report, you may be wondering how it may impact your FICO® Scores. Below we share answers to the most commonly asked questions about collections. As with any derogatory information, when reported, its impact on a FICO Score will gradually lessen over time as they age off the credit report.

1. What is a collection?

If you become significantly delinquent on a credit obligation such as a credit card or medical debt, the lender or company owed will often consider it a loss and sell it to a collection agency who will then try to collect on the money owed.

Lenders commonly send credit card accounts to a collection agency after 180 days of non-payment. Either the original creditor or the collection agency may report the account in collections to a credit bureau. The account will be marked on your credit report with a "collection" status.

2. What is a third-party collection?

Third-party collections are collection efforts made by a collection agency, outside of the original crediting company. First-party or internal collections is when the lender or company uses its employees to collect unpaid accounts.

3. How do FICO® Scores consider third-party collections?

How the credit reporting agencies report collections and how FICO Scores consider third-party collection information has evolved and it can differ by the score version.

• Paid medical collection debt and medical collection debt <$500 are no longer being reported by the credit reporting agencies and therefore are not considered in the calculation of any version of the FICO Scores.
• Collections reported as paid in full are disregarded by FICO® Score 9 and the FICO® Score 10 suite.
• Collections reported with an original amount under $100 are disregarded by FICO® Score 8, FICO® Score 9 and the FICO® Score 10 suite.
• Unpaid medical collections >$500 are considered, but have less impact on the score within FICO Score 9 and the FICO Score 10 Suite compared to older FICO Score versions.

First-party collections are still treated as derogatory and are not afforded these special treatments.

4. Will paying off the balances owed on my third-party collections increase my FICO® Scores?

Paying off a collection could cause the score to increase, decrease or have no impact at all. It depends on the change in the information reported on the collection as well as the other information in the credit report. For example, this action would likely have a lower positive impact if the individual has a lot of other negative information on his/her credit report. On the other hand, if the collection is the only negative item being reported, paying it off could help to increase the score.

5. Does the balance reported on a collection impact your credit utilization calculations within the FICO® Score?

Balances on third-party collections do not impact credit utilization characteristics within a FICO Score. Balances reported on first-party collections may be considered in credit utilization characteristics.

6. Does a FICO® Score consider whether a third-party collection balance is paid in full versus being settled for an amount lower than the initial amount?

"Settled" third-party collections reported with a zero balance will be treated as paid and not considered in FICO Score 9 and FICO Score 10.

7. How long does a collection stay on a credit report?

Third party collection accounts stay on the credit report for seven years from the original delinquency date of the original debt or the date of the first missed payment, after which the account was no longer brought current. You may see both the collection account and the account with your original creditor on the credit report.

Now armed with information about collections, check out the myFICO Forums to see how members deal with their debt and collections.