What Types of Debt Can Go to Collections?

Types of Debt That Can Go to Collections

Many different types of debt can go to collections. Here are a few examples:

• Credit card balances
• Student loans
• Auto loans (even after a vehicle has been repossessed, if its value is less than the remaining balance on the loan)
• Personal loans
• Utility bills
• Bank fees and overdrafts
• Fines and fees imposed by courts, law enforcement or government agencies
• Unpaid tuition
• Late rent payments
• Medical bills (though only medical collections of $500 or more may appear on your credit report)

Most creditors would rather avoid sending accounts to collections; they may send multiple late notices to try to collect late payments themselves. However, once a debt is deemed uncollectable by your original creditor, collections may be the next step.

What Happens When a Bill Goes to Collections?

When you fall behind on payments, your creditor may put your account into collections. Some creditors have in-house collection departments, but many will charge off the debt, close your account and sell the debt to a third-party collection agency. This typically happens when your payment is 120 days to 180 days late, but there's no set standard for when accounts may go to collections. If you're significantly late making payments, your debt can go to collections at any time.

When your account is sent to collections, the balance on your charged-off account changes to $0, and a new collection account appears on your credit report. The collection agency will contact you and attempt to collect the debt. Often, you'll have the option to work with the debt collection service directly to make arrangements and send payments until your debt is cleared.

You have the right to dispute debt in collections by requesting details about the original creditor; your original loan agreement; an itemized accounting of debts, fees and interest; and the license of the debt collector who has contacted you. You can also ask a debt collector to stop contacting you, although doing so won't stop the collections process.

Learn more >> How Does Debt Collection Work?

Should I Pay Debt That Goes to Collections?

Once your unpaid debt goes to collections, paying it off may be the simplest route to ending the process and moving on. Note that even if your debt is sold to a third-party debt collector, you're still legally obligated to pay it. If you can't pay your debt in full, you may want to negotiate with the debt collector or work with an attorney who can help you explore your options.

Before you pay a collection agency, consider these steps to help ensure you're on track to resolve your issues.

1. Rule out scams. Make sure a debt collector is legitimate before paying out any money. Ask for their name, address and telephone number as well as a state license number, then check their information with your state regulator. For a list of state agencies, visit the National Multistate Licensing System (NMLS) Consumer Access website.
2. Confirm the debt. Under the Fair Debt Collections Practices Act (FDCPA), debt collectors are required to provide you with a debt validation letter that shows the original creditor and the amount you owe within five days of first contacting you. If you have any questions or are confused about the debt collection process, request a more detailed debt verification or contact your original creditor. You can also confirm that your creditor has contracted with the collector who contacted you and make sure the collection service is the correct party to pay.
3. Make a payoff plan. Your goal is to pay off the debt in collections, either as a lump sum or payment plan, so your debt can be marked "paid" and the collection agency can stop taking action. Look at your budget and make sure you're able to make the payments required. If necessary, you may ask to settle the debt for less than what you originally owed. If you want help understanding your rights or crafting a settlement offer, consider working with an attorney or nonprofit credit counseling service.

Although it's a good idea to take precautions, it isn't wise to ignore a debt collector or let the process drag out. If you don't respond to communications from a collection agency or can't work out an acceptable payment arrangement, they may take you to court to collect their money.

Learn more >> Can Paying Off Collections Raise Your Credit Score?

How Long Do Collections Stay on Your Credit Report?

Paid and unpaid collections stay on your credit report for seven years, starting on the date of your first missed payment that led to collections. A collection account on your credit report is considered a negative entry and will have a negative impact on your credit score for as long as it appears (though its effect will lessen over time). Lenders reviewing your credit report also may see collection accounts as red flags.

Collection Accounts That May Not Affect Your Credit Scores

In a few cases, collection accounts may have little or no impact on your credit scores. Here are a few examples of collections that either don't appear on your credit report or have minimal effect on selected credit scores.

Medical Collections

All three national credit reporting agencies (Experian, TransUnion and Equifax) have changed their reporting policies related to medical debt in recent years. The following types of debt in collections no longer appear on consumer credit reports:

• Medical collections with an initial reported balance of less than $500
• Medical collection debts that have been paid
• Unpaid medical collection debts that are less than one year old

Additionally, the latest FICO credit scoring models—FICO Scores 9 and 10—give less weight to unpaid medical collections than to other collection accounts. VantageScore^® 3.0 and 4.0 models ignore both paid and unpaid medical collections in calculating scores.

Paid Collections

Typically, collection accounts stay on your credit report for seven years, even if you pay off your debt. However, paying off your debts in collections sometimes helps to raise your credit score. FICO and VantageScore have altered their calculation methods so that paid collection accounts no longer figure into your credit scores for FICO Scores 9 and 10, as well as VantageScore 3.0 and 4.0.

Small-Dollar Collections

FICO Scores 8, 9 and 10 ignore collection accounts when the original amount reported is under $100.

How to Avoid Having Accounts Go to Collections

The best way to avoid credit problems from collection accounts is to avoid having accounts go into collections in the first place. But that may be easier said than done, especially if you're going through difficult financial times. Depending on your individual circumstances, one or more of these strategies may help.

• Set up reminders or automatic payments. Paying every bill before its due date is the surest way to avoid collections—and one of the most important things you can do to build and maintain good credit. Set reminders so you don't accidentally miss payments and consider automatic payments for recurring bills.
• Check your credit reports regularly. Your credit reports can help you keep tabs on your outstanding debts and payments, including late payments that may lead to collections. By checking your credit reports regularly, you reduce the chances that missed payments will sneak up on you. Experian provides free access to your credit report and scores, and you also have the right to review your credit reports from all three major credit reporting agencies at AnnualCreditReport.com.
• Reach out to your creditors. If you're having difficulty covering a bill, try contacting your creditor to see if you can work out a payment plan. They may be willing to allow you to skip a payment or two, accept smaller payments or reduce your interest rate, if you agree to resume making payments and work toward paying off your debt. The key is being proactive: Skipping payments or sending in partial amounts may not keep you on track if you haven't worked out an arrangement with your creditor first.
• Consider credit counseling. An accredited credit counselor at a nonprofit credit counseling agency can help you work out a plan to get caught up on bills and negotiate with creditors on your behalf to create a formal repayment plan. They can also explain your options if repaying your debts isn't affordable.
• Be careful about cosigning. If you've cosigned a loan to help a family member or friend, their unpaid debts can cause credit problems for you. When a debt you've cosigned goes to collections, the collection account appears on your credit report as well as theirs.

The Bottom Line

Because collection accounts can have real consequences to your credit, it's a good idea to check your credit reports regularly. If you believe a collection account is listed inaccurately on your credit reports, or has been on your report for more than seven years since the date of the first missed payment, you have the right to dispute the entry. Also keep an eye out for medical debt that should not be reported—or that should be removed based on changes in reporting discussed above.

If you find a collection account on your credit report, paying it off could eliminate its impact on credit scores calculated using the latest versions of the FICO^® Score^☉ and VantageScore systems. The impact of an unpaid collection account will decrease over time, and it will eventually drop off your credit reports.