Credit Report Articles

Most Common Debt Collection Myths

Woman sitting outside making phone call to credit card company.

Dealing with debt collection agencies can be an unsettling experience, largely because it is unfamiliar territory. People may feel ashamed or humiliated for their mistakes and misunderstand the way debt collection works.

Debunking some common debt collection myths may help you make informed decisions while you get your credit score back on track.

Myth #1: When I pay off a debt in collections it is removed from my credit report

Debts that are sent to collections remain on your report for a period of seven years, regardless of whether they are paid or unpaid. The history on your account payment is also recorded, including any delinquencies over the years.

When you pay the total balance owed, the status of the collection account will be updated to paid status, however, both the original and collection accounts will remain on your credit report until seven years since the date of the original delinquency.

Myth #2: Only large balances are sent to debt collectors

There is no minimum amount for a debt to be passed on to collections.  Even an unpaid parking ticket for twenty dollars can be escalated, so no matter how small the bill, it’s best to pay it.

Myth #3: The collection amount will be the same as the original balance

When lenders sell your debt to a collection agency the balance listed on your credit report may increase, because the debt continues to accrue interest and other fees. As a result, the total amount listed on a collections account may be greater than that on the original account.

Unpaid debts that are sent to collection agencies can lower your credit score, making it more difficult or costly to obtain financing. If you are trying to repay a debt that’s been sent to a collection agency, the important thing is to improve your behavior over time.

Lenders will not only look to see that you have repaid your debt and made good on the account, but that you have sustained a good payment record – indicating that you have overcome any past financial hardships and are equipped to manage your debts responsibly.