How Much a Collection Will Affect Your Credit Score

When a bill goes unpaid for a certain amount of time, the debt is transferred to a collection agency and becomes a collection account. At this point it is automatically posted as an unpaid debt in your credit history, which counts negatively against your score. But how negatively it affects your credit score will depend on the length of your credit history, how old the collection account is, other current payments and the type of debt. Each credit case differs, as the credit information for every person differs, so there is no set rule as to how much a collection will lower a score.

Reasons

The reason why a collection account can cause a severe drop in a credit score is because your monthly debt payment accounts for approximately 35 percent of the overall credit score. Because a collection account is a debt that remains unpaid for a long period of time, it severely drops the credit score. But the affect will also depend on other information listed in the credit report.

Statute of Limitations

Every state has a different statute of limitations, stating how long the collection account can remain on the credit report. In most states this limit is seven years, but some states such as California allow a collection account to remain on a credit history for 10 years. Once a collection account has been placed on a credit history, your ability to get credit cards, car financing or a mortgage is severely hindered.

Paying the Collection Account

Paying a collection account already on your credit report will not remove it or change your credit score. The collection information will still be there for seven years, but the collection agency is required by the Fair Credit Reporting Act to provide accurate information, so your payment of the debt will be noted on the collection, and this payment will be considered when lenders evaluate your credit risk.

Time

Although a collection account will negatively affect your credit score for at least seven years, the negative impact will decrease as time passes. Of course, making your other payments on time will also help decrease this negative impact.