If you fail to pay your debts in a timely manner, your creditor will eventually turn your account over to a collection agency. Ignoring collections, however tempting, could leave you facing much steeper consequences than incessant calls and threatening demand letters. Debt collectors often report consumer accounts to the credit bureaus, and a single collection can wreak havoc on your credit scores for years to come.
The Reporting Period for Collections
Federal law dictates the amount of time that any entry can remain on your credit report before being deleted. Collections, like most negative entries, can only appear within your credit history for seven years. After the seven-year reporting period expires, the credit bureaus must delete old collections from your credit reports.
Creditors have to pay collection agencies a portion of the amount the collector recovers. Thus, turning accounts over to debt collectors is a creditor’s last resort and usually doesn’t take place until the debt is 180 days delinquent. This is also the date that starts the seven-year credit reporting period for collections.
Can Collections Remain on Your Credit Report Longer Than Seven Years?
The date that the collection agency receives your delinquent account from the original creditor does not impact the credit reporting period in any way. The same is true for the date the collector first reports the debt to the credit bureaus. Because of this, collection accounts may appear on debtors’ credit reports for considerably less than seven years.
For example, if an original creditor waits six months to turn your debt over to a collection agency and the collection agency waits another six months to report the debt to the credit bureaus, the collection will only appear on your credit report for six years and 180 days. Although six months is the standard amount of time that major creditors wait before selling delinquent accounts, some creditors wait much longer–further reducing the amount of time a collection can appear on your credit report for that particular debt.
One common misconception among debtors is that making payments to a collection agency refreshes the account and increases the length of time the collector’s trade line can appear on a consumer’s credit report. Although the date of last activity for the account updates each time you make a payment, this is not the date the credit bureaus use to determine the trade line’s age. As a result, you can pay down your debt without worrying that doing so will adversely affect your credit scores.
Incorrect Collection Dates May Lengthen the Reporting Period
Debt collectors are responsible for reporting correct information to the credit bureaus. Intentionally reporting incorrect information is a violation of federal law. Unfortunately, this fact doesn’t stop some debt collectors from doing just that.
By altering the date on a collection account, the collection agency can make the debt appear more recent than it actually is. This practice is advantageous to the collection agency because it ensures that the negative information will remain on the debtor’s credit report for a longer period of time–giving the debtor more incentive to pay.
If you aren’t certain whether or not a collection is obsolete and should be deleted, compare it to the original creditor’s trade line. The reporting period for a collection account is inexorably tied to the original debt. If the original creditor’s trade line is obsolete and no longer appears on your credit report, all collection accounts tied to that debt must also be removed.