Collections - How to Manage Them and What They Do to Your Credit.

Collections happen when a bill becomes 120 days past due. Sometimes the creditor will turn the account over to a debt collector or collection agency. It might take a few days to a few weeks before the collection account appears on a consumer's credit reports. The fact that you have collections listed on your credit report will almost certainly lower your FICO Scores.

Collections can affect more than just your FICO Score. You might have debt collectors harassing you and making you feel like this is a financial burden that will never go away. But even debt collectors have to play by the rules, and if you feel like you're being bullied or harassed, find out your rights at the Federal Trade Commission's website.

Your score weighs collections on your credit report according to when the collection occurred. Generally, the more recent the collection, the more it's going to hurt your FICO Score.

Is it better to pay off your collections?

As far as your FICO Score is concerned, two things are considered:

  • has a collections appeared on your credit report
  • when it was reported

So whether or not you pay your collections off is really a personal decision. Paying off a collection could cause the score to increase, decrease or have no impact at all. It depends on the change in the information reported on the collection as well as the other information in the credit report. For example, this action would likely have a lower positive impact if the individual has a lot of other negative information on his/her credit report. On the other hand, if the collection is the only negative item being reported, paying it off could help to increase the score.

Something else to keep in mind is that every lender uses its own criteria when evaluating loan decisions. Some lenders may want to see that you are paying off collections before approving your loan. So, paying off collections could very well improve your credit-worthiness in the eyes of a lender.

Collections remain on your credit report for 7 years. The best things you can do in the mean time are to continually pay all your bills on time and be responsible for your credit.