Collection accounts will almost always have a significant negative impact on a credit score.
A collection account is a listing in a credit report that represents a consumer account that has been assigned to a company to collect on an unpaid debt obligation.
If a consumer stops making the contractual payments on an account or debt, the lender or creditor may assign the account or sell the account to a collection agency. This action turns a credit account into a collection account. The collection account is the account with the collection company that is collecting on an unpaid consumer debt and is generally not the original creditor or original lender.
The original unpaid obligation or debt may be from a credit card debt that was unpaid, medical bills, utility bills, or any other contractual debt that was left unpaid and then sent to a collection agency by the original creditor. The collection account is the account with the collection agency as opposed to the delinquent account that exists with the original creditor.
The original creditor’s delinquent account may also be reflected in the credit report. For instance, a collection account for an unpaid credit card balance may be reported to the credit reporting agencies as the original delinquent account with the credit card company, usually as a charged off account, as well as the balance now being collected by the collection agency.
A collection account may also be reflected in the credit report without a corresponding original creditor account. As an example; cell phone companies and medical bills that are unpaid may be sent to a collection agency to collect the unpaid delinquent debt and these creditors will not report to the credit reporting agencies, yet the collection agency the debt is assigned to will most likely report to the credit bureaus or credit reporting agencies.
A credit score evaluates collection accounts on an individual’s credit report according to when the collection occurred. Individual credit scores weigh collections on a credit report according to when the collection occurred. Generally, the more recent the collection, the more it’s going to impact the credit score.
Collection account records, no matter how recently opened, all should expire and be removed from an individual’s credit report seven years after the last 180-day late payment on the original debt.
Note that closing an account doesn’t make the record in the credit report go away. A closed account will still show up on a credit report, and its status will be considered in the credit score calculation. Paid collections and unpaid collections are generally scored the same; the impairment to a credit score occurs as a result of the account being delinquent. .
Since the collection account is different from the original creditor account, whether it is a credit card or a medical bill, and the collection accounts cannot report a payment history since technically there is no payment record with collection agency only with the original creditor then there will not be a payment history from the collection agency in the credit report and the credit score simply evaluates the date of the account and the amount.
It is always worth the effort to investigate the validity of collection accounts and the amount owed to see if they can be removed from a credit report for inaccuracy, which is common.