Key Takeaways
- Collection accounts can significantly lower your credit score, especially if they’re recent.
- Original creditors often sell or assign delinquent accounts to third-party collection agencies.
- Collections remain on your credit report for up to seven years, even after payment.
- Newer scoring models (like FICO 9 and VantageScore 4.0) treat paid collections differently.
- Timely communication and strategic repayment may help limit long-term damage to your credit.
Can a Collection Agency Affect Your Credit Score?
Dealing with a collection agency can feel overwhelming—especially if you’re not sure how it affects your credit. Whether you’ve missed a bill or inherited an old debt, understanding how collections show up on your credit report is essential to protecting your financial future.
So, can a collection agency affect your credit score? The short answer is yes—but how and when it happens depends on several factors. Let’s break it down.
What Is a Collection Agency?
A collection agency is a company hired or authorized to recover unpaid debts from consumers. They may:
- Purchase the debt outright from the original creditor (common with credit cards or medical bills)
- Act on behalf of a creditor, collecting on commission
- Contact consumers via phone, mail, or email to request payment
Once a debt is turned over to collections, it usually means the original lender has stopped trying to collect and now relies on the agency.
Can a Collection Account Affect Your Credit Score?
Yes. Once a collection account is reported to the credit bureaus, it becomes a derogatory mark on your credit report. It can negatively impact:
- Payment history (which makes up 35% of your FICO score)
- Creditworthiness in the eyes of lenders
- Your ability to qualify for loans, credit cards, or mortgages
The score drop can be steep—often 50 to 100 points or more, depending on your overall credit profile and how recent the collection is.
When Do Collections Get Reported?
Collections aren’t reported immediately. Most original creditors give you 90 to 180 days to make payments before writing off the account and transferring it to collections.
Once the account is placed with a collection agency, they may wait a short period before reporting it to one or more of the three major credit bureaus (Equifax, Experian, and TransUnion).
How Long Do Collections Stay on Your Credit Report?
By law, collection accounts remain on your credit report for seven years from the date of the original delinquency—not the date it was sent to collections or paid off.
Even if you pay off the debt in full, the account won’t disappear immediately. However, it may be marked as “paid collection,” which can be viewed more favorably by lenders.
Do Paid Collections Still Hurt Your Score?
It depends on the scoring model:
- Older FICO models (FICO 8 and earlier): Paid collections still affect your score.
- Newer models (FICO 9, FICO 10, VantageScore 4.0): Paid collections are not factored into your score.
The problem? Many lenders still use older scoring models, especially for mortgages and auto loans.
That means even a paid collection can hurt your chances—though not as much as an unpaid one.
What About Medical Collections?
Medical debt is treated more leniently:
- The three major credit bureaus no longer report medical collections under $500.
- As of 2023, paid medical collections are removed entirely from credit reports.
- Unpaid medical debt may be reported only after one full year of delinquency.
This gives consumers more time to resolve medical bills without damaging their credit right away.
Can You Remove a Collection From Your Credit Report?
There are a few ways to potentially remove collections:
- Dispute inaccuracies with the credit bureau
- Negotiate a pay-for-delete agreement (where the agency removes the account in exchange for payment)
- Wait for it to fall off after seven years
Keep in mind: Pay-for-delete is not guaranteed and some agencies may refuse the request due to credit reporting policies.
How Much Will a Collection Drop Your Score?
The impact varies depending on your credit history. For example:
- Someone with excellent credit might see a 100+ point drop.
- Someone with a thin or low credit file might see a smaller change, as their score was already low.
- Multiple collections can compound the damage over time.
The more recent and larger the collection, the more it affects your score.
How Can You Minimize the Damage?
If you have a collection account, here’s how to reduce its impact:
- Pay it off or settle it to stop further reporting and collection activity
- Request a pay-for-delete (in writing)
- Monitor your credit to confirm accurate reporting
- Build new positive credit (secured cards, on-time payments, credit-builder loans)
Over time, the collection’s influence fades—especially if your recent credit behavior is strong.
Will a Collection Stop Me From Getting a Mortgage?
Not always—but it depends on the loan program and lender:
- Conventional loans: Often require all collections to be paid.
- FHA loans: May allow small unpaid collections if explained.
- VA loans: May be flexible, depending on total credit picture.
- Jumbo loans: Usually require clean credit reports.
A recent, unpaid collection can jeopardize approval—especially if your credit score is borderline.
What Should You Do If a Collection Appears?
- Verify the debt—Is it accurate? Within the statute of limitations?
- Request written validation from the collection agency.
- Check your credit reports from all three bureaus.
- Dispute errors if the account is incorrect or duplicate.
- Negotiate a settlement or payment plan if the debt is valid.
Taking quick action helps you regain control and protect your financial health.
Final Thoughts: Take Charge of Your Credit
So, can a collection agency affect your credit score? Absolutely—but it doesn’t have to define your financial future. By understanding how collections work, addressing them strategically, and staying proactive, you can rebuild and protect your credit over time.
Get Expert Help From ClearKC
Worried about how collections could affect your mortgage approval? At ClearKC, we help clients review their credit, resolve issues, and create a clear path to loan qualification.
Contact ClearKC today for guidance on credit questions, pre-approval support, and smart lending strategies that help you move forward with confidence.
Adriana Bates works with her clients during the loan process as a confidant, educator, and adviser. Adriana not only identifies their financial situation but also strives to understand her client’s priorities during this process.
She believes in the value of making educated decisions and wants to provide her clients with enough knowledge so they are empowered to do so. Adriana also serves to advise them throughout the process on what to expect from Clear Mortgage LLC LLC, and what their role entails, in order to make the process as smooth as possible.
Adriana is involved in the initial education/consultation, discussing her client’s options, talking with them during the process, and then ensuring everyone gets to the closing table.
