Debt collectors can report late payments to credit bureaus, which can negatively affect your credit score.
The Fair Credit Reporting Act (FCRA) requires debt collectors to report accurate information to credit bureaus, but it's up to the credit bureau to verify the accuracy of the information.
Debt collectors typically report late payments to all three major credit bureaus: Equifax, Experian, and TransUnion.
What Debt Collectors Do
Debt collectors are hired by creditors to recover money owed on delinquent accounts. They are paid a flat fee or a certain percentage of the amount they collect.
Creditors typically try to collect the debt themselves before sending it to a debt collector. If they're unsuccessful, they may then send the account to an external debt collection agency or lawyer.
Debt collectors may also purchase debt at a fraction of its face value and then attempt to recover the full amount of the debt or as much of it as they can. This is known as debt buying.
Debt collectors are not required to notify the account holder before sending debt to collections. However, they may try to collect the debt from the account holder before sending it to collections.
Credit Reports and Scores
A debt collector may report a debt to the credit bureaus, but only after it has contacted the debtor about it, and both can remain on credit reports for up to seven years.
The information in a credit report impacts how much a person pays for loans and other credit and sometimes whether a person can get credit. You can get a free copy of your credit report from each of the three major credit bureaus by visiting AnnualCreditReport.com.
Credit reports include information about a person's account and repayment history.
Here's how FICO Scores consider third-party collections:
- Paid medical collection debt and medical collection debt <$500 are no longer being reported by the credit reporting agencies.
- 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.
Paying off a collection could cause the score to increase, decrease or have no impact at all, depending on the change in the information reported on the collection as well as the other information in the credit report.
Reporting to Credit Bureaus
Debt collectors may report a debt to the credit bureaus, but only after they've contacted the debtor about it. This can happen even if the original creditor is still listed on the credit report.
A delinquent debt can remain on your credit report for up to seven years, and both the collection account and the original account may be listed.
Debt in collections can lower your credit scores, and late or missed payments that led to the account being sent to collections can also impact your scores.
Collection accounts can stay on your credit report for up to seven years, regardless of whether they're paid or unpaid. However, paid collection accounts may not affect your credit scores in the same way as unpaid collection accounts.
Here's a breakdown of how FICO Scores consider third-party collections:
Paying off a collection could cause your score to increase, decrease, or have no impact at all, depending on the change in information reported on the collection and other information in the credit report.
Disputing Under the FDCPA
You have the right to dispute errors on your credit reports. If you believe you’ve found inaccurate information on your report, contact the credit reporting bureau that produced the report containing the error.
The three major credit reporting bureaus are Experian, Equifax, and TransUnion.
You may also need to contact the company or person that reported the inaccurate information. The CFPB has more information on how to contact the bureaus and what information you may need to provide.
Prohibited Practices and Overview
Debt collectors are not allowed to engage in certain practices when trying to collect a debt. Harassment is not tolerated, and collectors cannot repeatedly call or contact you at work.
The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, deceptive, or unfair practices. This includes making false statements about the debt or the consequences of not paying it.
Debt collectors cannot threaten to sue you or garnish your wages unless they actually intend to do so. They must also provide you with a written notice of the debt within five days of the initial contact.
Debt collectors are not allowed to contact third parties about your debt, such as friends, family members, or neighbors. They can only contact you or your attorney.
Debt collectors cannot make false statements about the debt, such as saying it's a crime not to pay it. They must also be truthful about the amount you owe and the consequences of not paying it.
Debt collectors must stop contacting you if you ask them to in writing. This is known as a "cease and desist" letter.
Credit Bureau Information and Dispute
Credit reports are a crucial part of your financial life, and it's essential to understand how they work. Credit reports include information about your account and repayment history.
You can contact the credit reporting bureau that produced the report containing the error by calling (651) 296-3353 for the Twin Cities area or (800) 657-3787 outside the Twin Cities.
The CFPB recommends starting by contacting the credit reporting bureau that produced the report containing the error. The three major credit reporting bureaus are Experian, Equifax, and TransUnion.
Collection accounts can stay on your credit reports for up to seven years, according to the CFPB. This applies to collections that are paid or unpaid.
You may also need to contact the company or person that reported the inaccurate information. The CFPB has more information on how to contact the bureaus and what information you may need to provide.
Unpaid collections may negatively impact your credit score, but paid collection accounts may not affect your credit scores in the same way.
Frequently Asked Questions
How do I remove third party collections from my credit report?
To remove third-party collections from your credit report, follow a 6-step process that involves disputing inaccuracies, negotiating with creditors, and potentially seeking professional help. Start by asking for proof of the debt and disputing any inaccuracies to begin the removal process.
What happens if my account gets sent to third party collections?
Having your account sent to third party collections can harm your credit scores and reports for up to seven years. Learn more about the consequences and how to manage debt collection
Do all collections show up on credit report?
No, not all collections show up on credit reports, as it's up to the collection agency's discretion to report the debt. However, if a collection account is reported, it can significantly impact your credit score.
Does collections affect your credit right away?
Collections can affect your credit score, but not always right away - some debts, like unpaid medical bills, get a 180-day waiting period before being reported. Timing varies, so it's essential to understand how collections impact your credit.
Sources
- https://www.investopedia.com/terms/d/debt-collector.asp
- https://www.ag.state.mn.us/consumer/publications/debtfactsheet.asp
- https://www.neweconomynyc.org/your-rights-under-the-fdcpa-disputing-the-debt/
- https://www.myfico.com/credit-education/faq/negative-reasons/collections-affect-credit
- https://www.capitalone.com/learn-grow/money-management/how-long-do-collections-stay-on-your-credit-report/
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