Here's What Happens to an Account in Collections — Even When You Pay Up


Life happens. Whatever the reason, you've fallen behind on your monthly payments, missing due dates on your credit cards, mortgage, car loan, or medical bills. Maybe you've missed so many payments for so long that your creditors have hired debt collection agencies to persuade you to pay up.

Having an account go into collections is devastating to your credit score. And the damage is long-lasting: Collections information remains on your credit reports for seven years.

Paying off your debt will bring some relief and get the debt collectors to stop calling or writing. But it won't erase the hit to your credit. Here's what will happen.

You might not qualify for new loans or credit

The biggest negative of having an account fall into collections is that it gets reported on your credit reports. This means that every time you apply for new credit or a loan, the bank or financial institution lending you money or extending you credit sees that you have an unpaid debt.

After you pay your debt, that collections account is not immediately removed from your credit reports. Instead, the account is updated to show "paid collection." Your account will also no longer show a balance due. But the "paid collection" notice does remain on your credit report for the full seven years from your original delinquency date.

Just as bad, all of the missed payments that you racked up before your creditor sent your account to collections remain on your credit reports for seven years, too. This combination can make you look toxic to many lenders and creditors.

If lenders do approve new loan or credit applications during this time, they'll most likely charge you high interest rates because they view you as more likely to miss payments in the future. The higher interest rates offer them financial protection. (See also: How to Rebuild Your Credit in 8 Simple Steps)

Your credit score will tumble

Having an account go to collections will also cause your credit score to plummet. How much your individual score will fall varies depending on where your score was before your account went to collections and how many missed payments you had.

Even if you pay off your debt, the damage to your credit score will remain. Your score won't immediately shoot up just because you've paid off a past-due debt.

The only way to improve a damaged credit score is by making your payments on time and paying off as much of your credit card debt as possible. This all takes time, though. There are no quick fixes — even a payoff — to credit score woes. (See also: The 7 Debt Payoffs That Boost Your Credit Score the Most)

Debt collectors will stop calling

Once your debt goes into collections, expect the calls from debt collectors to follow. These calls can be annoying, especially when they come week after week. One of the few immediate fixes that paying off your debt will do is stop these calls. Debt collectors have no reason to call if you no longer owe any money.

If you're currently being harassed by debt collectors, you can tell them that you prefer to hear from them in writing or meet with an attorney to craft a cease-and-desist letter. Be aware, though, that just because debt collectors stop calling you, it doesn't mean that you don't owe your debt. According to the Fair Debt Collection Practices Act, debt collectors can't threaten you, call you before 8 a.m., call you after 9 p.m., and can't call you multiple times per day. (See also: 5 Things Debt Collectors Don't Want You to Know)

A "pay for delete" might provide early relief

You might consider entering what is known as a "pay for delete" agreement with your creditors or a collections agency. Under such arrangements, you agree to pay your debt but only if your creditors or collections agency removes the notice of your unpaid debt from your credit report before the full seven-year time frame.

This practice doesn't always work. Lenders don't like it, claiming it presents them with false information about a borrower. And many creditors or debt collectors won't even consider such an arrangement.

Still, this doesn't mean that you can't try. Just don't expect much success when asking for "pay for delete."

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