Will having a debt collector after me lower my credit score? (2024)

FAQs

Will having a debt collector after me lower my credit score? ›

This one is easy—YES! Having a debt in collections will definitely affect your credit score. But that doesn't mean you should give up.

Collections fall under payment history, the biggest factor in your FICO^® Score^☉ calculation, responsible for about 35% of your score. Consumers with collections on their credit reports may have lower credit scores than consumers who have no collections.

So, how many points does a collection drop your credit score? If you have a high score of 700, you can expect the first collection to drop it over 100 points. If it's lower than 700, expect even more.

For recent versions of the FICO and VantageScore credit scoring models, paying off a collection account may help improve your scores. According to Experian®, one of the three major credit bureaus, that's because these credit scoring models only penalize unpaid collection accounts.

Settling a debt will generally help your credit a little, although not as much as paying your bills in full. However, if you intentionally stop making payments on an account that's current or only slightly past due, that could significantly hurt your credit scores in the meantime.

One of the ways to delete a collection account is to call the collection agency and try to negotiate with them. Ask them to delete the collection in exchange for paying off your debt. Also, get the agreement in writing. If they accept it, your credit could increase by as much as 100 points.

Collections accounts generally stick to your credit reports for seven years from the point the account first went delinquent, even if the account has been paid in full. But you may want them off sooner than that because unpaid collections can make you look bad to potential creditors.

Successfully disputing inaccurate information is the only surefire way to get collections removed from your credit report. If you've repaid a debt and the collection account remains on your credit report, you can request a goodwill deletion from your creditor, though there's no guarantee they'll grant your request.

It is theoretically possible to get a 700 credit score with a collection account on your credit report. However, it is not common with traditional scoring models. A derogatory mark like a collection account on your credit report can make it incredibly difficult to obtain a good credit score like 700 or over.

If you never pay a debt in collections, the immediate consequence is a significant negative impact on your credit score. This derogatory mark can stay on your credit report for seven years, affecting your ability to secure loans, credit cards, and favorable interest rates.

Is it worth using a debt collector? ›

They're Experienced

The number one benefit of using a debt collector for debt recovery is their experience and knowledge in their field. As a business manager or owner, you may not actually have any experience or prior knowledge, or even know where to start with handling a late payment. Debt collection agents do.

Verify the debt collector and that the debt is legitimate and dispute the collection if it isn't. If you do owe the debt, it's best to pay it off in full instead of negotiating a settlement. One way to avoid collections is to create a simple budget to ensure your money is going toward all of your current bills.

Generally, paying the original creditor rather than a debt collector is better. The creditor has more discretion and flexibility in negotiating payment terms with you. And because that company might see you as a former and possibly future customer, it might be more willing to offer you a deal.

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.

Debt Settlement Will Most Likely Hurt Your Credit Score

Debt settlement is likely to lower your credit score by as much as 100 points or more.

If you can afford to pay off a debt, it's generally a much better solution than settling because your credit score will improve, rather than decline. A better credit score can lead to more opportunities to get loans with better rates.

A debt collection agency will first send or give you a notice. The notice will ask for the debt to be paid and tell you that if it isn't paid, you'll get a bad credit rating and will be taken to court to have the debt enforced.

Debt collectors are not permitted to try to publicly shame you into paying money that you may or may not owe. In fact, they're not even allowed to contact you by postcard. They cannot publish the names of people who owe money. They can't even discuss the matter with anyone other than you, your spouse, or your attorney.