What is a Collection?

A collection is an unpaid bill, passed off to a collection agency by the original creditor. After the original creditor has attempted to collect the debt on several occasions, the company will “charge off” the account and send it to a third party collections agency who will then continue to collect the debt. Debts in collections can often be negotiated for a lower portion of what a person owes, though they may be charged income tax on the difference between the amount owed and the amount paid. Collections should not be confused with judgments, as this the stage before the creditor takes the debtor to court.

How Collections Affect a Credit Score

Collections are negative on a credit report, though they are not as harmful as judgments.  It can be difficult to obtain credit for a credit card, an auto loan or even a mortgage if there are collections on a credit report. If the debtor makes an effort to pay off the collections, the credit score will improve.

Depending on the state a debtor lives in, and the statute of limitations for that state, the collection may stay on a credit report for seven years, or the length of time allowed by statute, whichever is longer. In California, for instance, collections may stay on file for 10 years, and be renewed for another 10 years, for a total of 20 years.

Credit Repair Options after a Collection

One of the biggest mistakes that you could make when trying to repair your own credit would be to simply contact the collection agency and pay off an old collection account reporting on your credit report. By paying off a collection, the collection agency will label the collection as paid in full on your credit report, but this also updates the last date of activity on the negative account. Lets say you had a two year old collection reporting on your credit. If you pay it off, your credit report will change to reflect a RECENT paid collection. Your score will actually lower instead of raise!

The best way to deal with collection accounts on your credit report is to hire a professional. We recommend the Lexington Law Firm. Lexington Law Firm has been in business for over 19 years, having served over 500,000 clients in that time. They have removed 1,013,469 negative items from their client’s credit reports in 2009 alone. Here are some of their statistics from last year:

Items removed from credit reports:

  • Bankruptcies: 9,713
  • Charge Offs: 158,531
  • Collection Accounts: 485,147
  • Foreclosures: 2,567
  • Judgments: 28,564
  • Late Payments: 213,538

Visit Lexington Law’s website or call 800-496-3604 to speak with a credit professional from Lexington law about your situation now.