In this article:
Almost any bill you leave unpaid can be sent to a collection agency—yielding a negative entry on your credit report that can hurt your credit score and potentially limit your access to credit.
Unpaid debt—funds you've borrowed and failed to repay—typically are sold to collection agencies around six months after your first missed payment. The types of unpaid debt that get sent to collections include:
- Credit card balances
- Student loans
- Auto loans (even after a vehicle has been repossessed, if its value is less than the remaining balance on the loan).
- Personal loans
Other unpaid bills that are unrelated to borrowing can also be turned over to collection agencies. The timeline for when the accounts will be sent to collections depends on the policy of the entity owed the money. These include (but aren't limited to):
- Medical bills
- Utility bills
- Bank fees and overdrafts
- Fines and fees imposed by courts, law enforcement or government agencies.
What Happens When an Account Goes to Collections?
Your credit reports track your history of repaying loans and credit cards. If you leave any of those bills unpaid long enough, the creditor could charge off the debt, close your account and sell the debt to a third-party collection agency. Typically, this is done after 120 days, or four billing cycles, although it can take up to 180 days for a credit card to be charged off. When a collection agency takes over the debt, the balance on the charged-off account changes to $0, and a new collection account appears on your credit report.
If you check your credit reports regularly, it's difficult to be surprised by collections related to money you've borrowed since updates to your credit report will reflect each missed payment before the collection account appears. Furthermore, creditors will certainly be reaching out to you in the months following your first missed payment, trying to get your payments back on track.
Collection accounts connected to other unpaid bills can come as more of a surprise, however: Missed payments to banks, medical providers, utilities and other service providers do not automatically appear on your credit reports, but if those unpaid bills are turned over to collections, the collection accounts do get added to your credit reports. The companies you owe will invariably try to reach you before that happens, but it's possible, in the case of individuals who have moved or in cases of medical bills for which the provider has been dealing with an insurance company instead of the patient, for you to be unaware of the debt in question until it appears on your credit reports.
To determine whether you have any collection accounts you are not aware of, check your credit reports regularly.
How Long Do Collections Stay on Your Credit Report?
An account in collections remains on your credit report for seven years, dated from the first missed payment that led to the charge-off and sale to collections. Collection accounts are considered negative entries on your credit report, which means they can have a negative impact on your credit scores as long as they remain on your credit reports. Not only that, lenders reviewing your credit report may see them as red flags.
Collection Accounts that May Not Affect Your Credit Scores
The national consumer credit reporting agencies (Experian, TransUnion and Equifax) responded to growing concerns over medical debt collections by changing their handling of those accounts in the National Consumer Assistance Plan. If a medical debt collection account is paid by an insurance company, it is removed from your credit reports immediately, instead of persisting for seven years like other paid collection accounts.
The companies that maintain the leading credit scoring models, FICO and VantageScore®, also altered their calculation methods in response to consumer concerns over collection accounts:
- FICO® Score☉ versions launched since FICO® Score 8 (introduced in 2009) ignore small-dollar "nuisance" collection accounts in which the original balance was less than $100.
- FICO® Score 9 (introduced in 2014) and FICO® Score 10 (the most recent version, introduced in 2020) additionally ignore all paid collection accounts and assign less weight to unpaid medical collections than they do other unpaid collections.
- VantageScore versions 3.0 (introduced in 2013) and 4.0 (the most recent version, introduced in 2017) ignore all paid collection accounts when calculating your credit score.
How to Avoid Having Accounts Go to Collections
The simplest way to avoid having accounts go to collections—and one of the best ways to help your credit scores over time—is to take care to pay your bills on time, every month. Setting up automatic payments or using automatic reminders on your phone can help you make this a habit.
If you're having difficulty covering your payments, reach out to your creditors to see if you can arrange to make smaller payments. Creditors may work with you if you can show you'll be able to resume regular payments within a reasonable amount of time, and they typically won't send your account to collections as long as they're receiving some form of payment each month.
If you can't see any end in sight to difficulties covering all your bills each month, consider consulting an accredited credit counselor. Nonprofit credit counseling agencies can advise you on organizing your budget and help you explore options for getting caught up on your bills, including negotiating with creditors on your behalf to help you work out a formal repayment plan. They can also go over your options if bill repayment is unaffordable. You can locate reputable nonprofit credit counselors through the National Foundation for Credit Counseling.
The Bottom Line
Collection accounts can do long-term damage to your credit scores and access to credit, so it's wise to check your credit reports regularly in case one shows up unexpectedly. If you believe a collection account is listed inaccurately on your credit reports or has been on your report for more than seven years from the first missed payment that caused it, you can dispute the entry. If a collection account is accurate, paying it off can eliminate its impact on credit scores calculated using the latest versions of the FICO® Score and VantageScore systems. If you leave a collection account unpaid, its impact on your credit will diminish over time, and it will eventually drop off your credit reports.