The Ultimate Guide to Credit Scores and How to Improve Them

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Understanding Collections and Your Credit Report

Do I Need to Notify the Credit Bureaus of Paid Collections?

No, you don’t need to notify the credit bureaus when you pay off a collection. The collection agency will inform the major credit bureaus (Experian, TransUnion, and Equifax), and they will update your records. This process usually takes about a month. However, the collection account will remain on your credit report for seven years from the date of the first missed payment. If you had extenuating circumstances, you can request a goodwill deletion from the collection agency, although they are not obligated to comply.

How Do Collections Affect Credit?

The impact of collections on your credit score varies based on the type of debt and the credit scoring model used. Newer models like FICO® Score 9, 10, and VantageScore® 3.0 and 4.0 ignore paid collections. Medical collections under $500 do not appear on your credit report or affect your score. However, unpaid medical collections over $500 and non-medical collections can negatively impact your score, especially with older scoring models like FICO® Score 8, which many lenders still use.

How Long Do Collections Stay on Your Credit Reports?

Collection accounts remain on your credit report for seven years from the date your debt first became delinquent. This applies whether the debt is paid or unpaid. If your debt is sold to multiple collection agencies, each account will drop off your report seven years from the original delinquency date.

How to Remove Inaccurate Collections From Your Credit Report

If a collection account is inaccurately listed as unpaid, you can take the following steps:

1. File a Dispute with the Credit Reporting Agency: Contact the relevant credit bureau (Experian, TransUnion, or Equifax) and provide evidence of payment.
2. Contact the Collection Agency: Dispute the incorrect information directly with the collection agency.
3. Contact the Original Creditor: If necessary, reach out to the original creditor to resolve the issue.

How to Improve Your Credit When You Have Collections

Even with accurate collection accounts, you can take steps to improve your credit:

• Dispute Inaccuracies: Obtain your credit reports from AnnualCreditReport.com and dispute any errors.
• Pay Bills on Time: Set up automatic payments to avoid late or missed payments.
• Reduce Credit Card Balances: Aim to keep your credit utilization below 30%, ideally under 10%.
• Avoid New Credit Applications: Each application can temporarily lower your score.
• Keep Unused Credit Cards Open: Closing them can increase your credit utilization ratio, which may lower your score.

The Bottom Line

Collection accounts can significantly impact your credit score, but you can take steps to mitigate their effects. For personalized mortgage services and expert advice, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey and improve your credit score.