Can Not Paying a Debt Collector Hurt My Credit?

Dealing with a debt collector when you're already short on funds can be a stressful experience, because the collector wants you to pay money you may not have available to satisfy your past-due debt. However, failing to pay a debt collector can lead to more stressful consequences. In addition to repeated phone calls and letters, avoiding payment can affect your credit in several ways.

Late Payment Reports

If your debt payment becomes more than 30 days past due, the debt collector can report the late payment to credit bureaus -- a late payment report can reduce your credit score and affect your ability to obtain future credit. When your account reaches 60, 90 and 120 days past due, the creditor can also report these delinquencies to credit bureaus. Each successive report causes more serious damage to your credit.

Charge-Offs

If your account becomes severely delinquent, typically more than six months past due, the lender may charge off the account as bad debt. A charge-off does not cancel your debt -- it simply means the creditor has given up on you repaying it. The creditor or debt collector will report the charge-off to the credit bureaus, and the entry will stay on your credit report for seven years. Because a charge-off shows a complete failure to repay your debt, it impacts your credit score even more severely than a 120-late payment report. Whether paying off a charged off debt helps your credit score depends on several factors, including the age of the charge-off: Paying an old charge-off resets the "last active date" on the account, which can increase the negative impact it has on your score, even if you bring the balance to zero.

Civil Judgment

The debt collector will not simply go away after a lender has charged off your bad debt. In some cases, the collector will file a civil lawsuit against you to collect the debt. If the court decides the lawsuit is valid, it will issue a judgment in favor of the creditor or debt collector. The judgment becomes part of your public record file, and it also appears on your credit report. The judgment will stay on your report for seven years after you pay off your debt, or seven years after it expires. Judgment expiration time frames vary by state, and most states allow collectors and creditors to renew judgments, which can allow this public record to affect your credit for decades. As with a charge-off, paying off an old judgment resets the "last active date," which may make it have a greater negative effect on your credit score.

Bankruptcy

In some cases, bankruptcy may be the only viable option for obtaining relief from demands made by debt collectors. Bankruptcy allows you to erase or reorganize most of your debts, ends collection calls and letters and can relieve obligations under some judgments. However, a personal bankruptcy can lower your credit score more severely than any other type of credit report entry. A Chapter 7 bankruptcy remains on your credit report for 10 years after the date of discharge, and a Chapter 13 bankruptcy typically stays on your credit report for seven years after discharge.