7 Common Questions about Collections and FICO Scores

If you have a collection on your credit report, you may be wondering how it may impact your FICO Scores.

As with any derogatory information, its impact on a FICO Score will gradually lessen over time as it ages off the credit report. 

What follows are seven common questions about collections and FICO Scores, from myFICO.

What is a collection?

If you become significantly delinquent on a credit obligation such as a credit card or medical debt, the lender or company owed will often consider it a loss and sell it to a collection agency who will then try to collect on the money owed.

Lenders send many credit card accounts to a collection agency after 180 days of non-payment. Either the original creditor or the collection agency may report the account in collections to a credit bureau. The account will be marked on your credit report with a “collection” status.

What is a third-party collection?

Third-party collections are collection efforts made by a collection agency, outside of the original crediting company. First-party or internal collections is when the lender or company uses its employees to collect unpaid accounts.

How do FICO Scores consider third-party collections?

How FICO Scores consider third-party collection information has evolved. It can differ by the score version.

With versions older than FICO Score 8, any third-party collection reported will be considered negative within the score.

With FICO Score 8, FICO Score 9 and FICO Score 10, logic is added to ignore small-dollar third-party collections (those with an original amount of less than $100).

With FICO Score 9 and FICO Score 10, additional logic is added to ignore any third-party collections that are paid in full. While unpaid medical collections with a balance are still considered negative, they have less impact in FICO® Score 9 and FICO Score 10 as compared with previous versions.

First-party collections are still treated as derogatory and are not afforded these special treatments.

Will paying off the balances owed on my third-party collections increase my FICO Scores?

From a FICO Score perspective, the impacts on the score will vary depending on other information in your credit report, the information on the collection and the FICO Score version you are reviewing.

With FICO Score 8 and older versions, paying off a collection would not have a positive impact on the score. With FICO Score 9 and FICO Score 10, paid third-party collections are not considered negative by the score. As such, paying off third-party collection balances could help increase FICO Score 9 and FICO Score 10.

Does the balance reported on a collection impact your credit utilization calculations within the FICO Score? 

Balances on third-party collections do not impact credit utilization characteristics within a FICO Score. Balances reported on first-party collections may be considered in credit utilization characteristics.

Does a FICO Score consider whether a third-party collection balance is paid in full versus being settled for an amount lower than the initial amount?

“Settled” third-party collections reported with a zero balance will be treated as paid and are not considered negative in FICO Score 9 and FICO Score 10.

How long does a collection stay on a credit report?

Third party collection accounts stay on the credit report for seven years from the original delinquency date of the original debt or the date of the first missed payment, after which the account was no longer brought current. You may see both the collection account and the account with your original creditor on the credit report.

Find out more at www.myfico.com.

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