How Bad Are Collections For My Credit Reports and Credit Scores?

“John, I’m in a battle with a doctor’s office over a bill they sent to me that I know is supposed to be paid by my insurance company. I flat out refused to pay it and now I think I screwed up.  It’s now on my credit report and I have great credit, never missed a payment in my life.  What is this going to do to my scores?”

This depends on the number of collections, how old they are, amount owed, and which credit score your lender uses. Another factor that impacts your credit is the original account that was turned over to collections. Since this is somewhat of a long list of items, I will explain each.

I want to explain how the collection gets on your credit report in the first place.  It resulted from the original account that became uncollectable.  The lender or doctor’s policy determines if they write it off and do nothing else, sell the account to a debt collector, or turn it over to a collection agency.  The original account is usually at least 120 days past due before being turned over to collections.

If it is sold or turned over to a collection agency, the agency also reports this account to the credit bureaus as a collection account. You have a double whammy on your credit report if the original account is reported (most likely not since we’re talking medical debt)– the delinquency of the original account and the collection account.

Collections remain on your credit report for seven years from the date it became 180 days past due on the original account. For example, an original account 180 days past due (6 months) on April 1, 2013 and was turned over to collections, would have both the original account and the collection account deleted from the credit report on April 1, 2020.

The impact on your FICO score depends whether you had a good or bad score.  One collection can have a major impact on a good score, compared to minor (or no) impact of an additional collection on a poor score.

The age of the collection account is also a factor.  The older the collection, the less impact it has on your credit. The most current 24 months has the most impact on your credit if it’s impacting it at all.

The latest version of FICO, FICO 08, ignores collections with an original balance under $100. Older FICO versions have no dollar limitation and include collections for any amount. VantageScore 3.0 ignores collections with a zero balance. If you pay off or settle a collection, it can have a substantial positive impact on your score.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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