Medical debt can impact your credit score through either your length of credit history or your payment history, depending on the rest of your credit. Learn more about how exactly it can do that below.
In This Piece
Updates to Medical Debt Collections as of 2022
If you currently have unpaid medical debt, you’ll be happy to learn that there have been changes to the way this debt is recorded on credit reports. The three main credit reporting agencies, TransUnion, Equifax and Experian, are changing the way they handle medical debt.
Paid medical debt doesn’t stay on your reports. Perhaps the biggest change comes with how medical debt is reported once you pay it off. Starting July 1, 2022, all three credit reporting agencies no longer include paid medical debt on individual credit reports. Prior to this change, any medical debt would have remained on your credit report for up to 7 years. After July 1, 2022, any medical debt will be removed from your credit report as soon as it’s paid in full.
New medical debt won’t show up on your reports for a year. These credit reporting agencies are also giving consumers more time to pay off their medical debt. Previously, medical debt that was at least 6 months past due could be part of your credit report. However, the new changes push this waiting period up to 1 year. Thanks to this change, you now have 1 full year to pay off any medical debt or enter into a payment plan agreement before it impacts your credit report.
(2023) Bills under $500 will not appear on your credit reports. The third credit reporting agencies medical debt change takes effect in 2023 and involves health care bills under $500. The credit reporting agencies have agreed not to include unpaid medical debt under $500 on credit reports. The Consumer Financial Protection Bureau estimates that this change could impact two-thirds of all unpaid medical debt reported on credit reports.
It’s important to note that this change doesn’t relieve you from paying your medical debt. You still owe these medical bills, and medical debt collectors can still contact you. It only means this debt will no longer be part of your credit report. Medical organizations and collection agencies can still take other actions, such as court action, if you fail to pay this debt.
These changes could mean a significant improvement in your overall credit score. This is especially true if you currently have paid or unpaid medical debt on your credit report. The new changes may also hurt some consumers.
If medical debt is the only thing listed on your credit report, its removal could result in an unscorable credit score. This only happens when there isn’t enough information on your credit report to determine an accurate credit score.
What Impact Will Medical Debt Have on My Credit?
Medical debt listed on your credit report has a direct impact on your credit score. In fact, your payment history accounts for as much as 35% of your overall credit score. In the past, many credit score models treated medical debt just like all other forms of debt. In this scenario, medical debt could significantly lower your credit score.
However, there’s a new push to treat medical debt differently from other forms of debt. This different treatment is due to the fact that medical debt is often unplanned and unavoidable.
For example, with a credit card, you choose to establish a credit card and make purchases. It’s expected that you budget for this credit card debt prior to making purchases. Medical bills are different because you never know when a medical emergency may occur. You also don’t have an option about seeking treatment because your life may depend on it. For these reasons, many credit score models are changing their formulas.
For instance, VantageScore 3.0 and VantageScore 4.0 no longer consider medical debt when calculating credit scores. While FICO does still consider medical debt listed on a credit report, it holds less weight than other types of unpaid debts.
The reality is that unpaid medical bills can affect your credit score if they’re listed on your credit report. The extent of this effect depends on the credit score model. You can track your Experian credit score free for up to 14 days with Free Credit Score. This can give you some idea of how medical debt may be impacting your credit score.
How Long Does Medical Debt Stay on Your Credit Report?
If you have medical debt that’s over $500 and more than 1 year overdue, it can be reported to the credit reporting agency and be listed on your credit report. This unpaid medical debt can remain on your credit report for up to 7 years or until it’s paid in full. Thanks to the new changes on July 1, 2022, all paid medical debt is removed from your credit report. However, the removal process can take up to 30 days to complete.
How to Get Medical Debt Off of Your Credit Report
Everyone makes mistakes sometimes, and credit reporting agencies are no different. It’s important to regularly check your credit reports to make sure they don’t include any errors. All three major credit reporting agencies allow you to request one free credit report each year. You can also check out your Free Credit Report Card to see how information on your credit report is impacting your credit score.
If you believe any medical debt is listed on your credit report in error, you can take steps to have this debt removed. With the new reporting changes in mind, you should also take steps to have any medical debt that’s paid in full, unpaid medical bills less than $500 or debt that’s less than 1 year past due removed from your credit report.
You can file a dispute by submitting a credit challenge letter explaining the error, along with any documentation to prove your claim, directly to the credit reporting agency. These agencies are required to investigate all dispute claims. If these agencies find the debt is listed in error, they’ll remove it from your credit report.
Do you have bill collectors contacting you about unpaid debt? If so, it’s important to understand your rights. Even if you have debt that’s still unpaid, your creditors only have a certain amount of time to take legal action against you.
So, before you think about talking to a bill collector or agreeing to a new payment arrangement, it’s important to know what the statutes of limitations are in your state. It’s these statutes that can help you determine your next step.
Keep reading to learn more about what statutes of limitations on debt collection are and how they work.
In This Piece
What Is a Statute of Limitations on Collections?
The statute of limitations on collections is the amount of time a creditor or debt collector has to file a lawsuit to collect unpaid debt. These statutes vary by state, type of debt and terms of the contract, if there is one.
Occasionally, creditors and debt collectors may try to file a lawsuit after the statute of limitations has ended. So, it’s your responsibility to provide the courts with proof that it’s past the statute of limitations. So, be sure to save any payments made or communications you had with any creditor or collections agency.
When the clock for the statute of limitations on debt begins varies from state to state. It either starts when you miss your first payment or when you have the last communication with the creditor or debt collector.
Can a Debt Collector Restart the Clock on My Old Debt?
There’s a chance that communication with a debt collector could restart the clock on the statute of limitations. For example, if you agree to any new payment arrangement or make a payment, this act could restart the clock.
Effect of Statute of Limitations on Your Credit Report
If you’re looking for ways to repair your credit, the statute of limitations has no impact. It’s important to understand that the statute of limitations doesn’t affect how long a debt can remain on your credit report. These are two different policies.
In most cases, a debt can remain on your credit report for up to seven years. This is the case even if the statute of limitations has ended. This means that while creditors may no longer be able to take you to court, your debt could still impact your credit score.
What Is the Statute of Limitations on Debt Collections by State?
Statutes of limitations on collections vary by state and by type of credit account. There are four basic types of debt:
Written debt. Written debt occurs when there’s a signed contract that details the terms of the loan. This doesn’t have to be a formal contract. It can simply be written on a piece of paper.
Oral debt. Oral debt is a verbal agreement made between two people that details the terms of the debt.
Promissory notes. Promissory notes are written agreements where you agree to make a set number of payments over a set number of years. While it is also a form of written debt, promissory notes normally include a promise to repay as well as a repayment schedule. This makes them more legally binding than a written debt or IOU. Common types of promissory notes include home mortgages and student loans.
Open-ended credit. Open-ended credit includes any type of revolving credit account, such as credit cards.
Below is a look at the statute of limitations on collection by state, broken down by debt type.
State
Written Contract
Oral Contract
Promissory
Open-Ended
Alabama
6
6
6
3
Alaska
3
3
3
3
Arizona
6
3
6
6
Arkansas
5
3
5
5
California
4
2
4
4
Colorado
6
6
6
6
Connecticut
6
3
6
6
Delaware
3
3
3
4
Florida
5
4
5
5
Georgia
6
4
6
6
Hawaii
6
6
6
6
Idaho
5
4
5
4
Illinois
10
5
10
5
Indiana
10
5
10
6
Iowa
10
5
10
6
Kansas
5
3
5
3
Kentucky
10
5
15
10
Louisiana
10
10
10
3
Maine
6
6
20
6
Maryland
3
3
6
3
Massachusetts
6
6
6
6
Michigan
6
6
6
6
Minnesota
6
6
6
6
Mississippi
3
3
3
3
Missouri
10
5
10
5
Montana
8
5
8
5
Nebraska
5
4
5
4
Nevada
6
4
3
4
New Hampshire
3
3
6
3
New Jersey
6
6
6
6
New Mexico
6
4
6
4
New York
6
6
6
6
North Carolina
3
3
5
3
North Dakota
6
6
6
6
Ohio
6
6
6
6
Oklahoma
5
3
6
3
Oregon
6
6
6
6
Pennsylvania
4
4
4
4
Rhode Island
10
10
10
10
South Carolina
3
3
3
3
South Dakota
6
6
6
6
Tennessee
6
6
6
6
Texas
4
4
4
4
Utah
6
4
6
4
Vermont
6
6
6
6
Virginia
5
3
6
3
Washington
6
3
6
6
West Virginia
10
5
6
5
Wisconsin
6
6
10
6
Wyoming
10
8
10
8
Source: The Balance
How Long Can You Legally Be Chased for a Debt?
Just because the statute of limitations has ended doesn’t mean you don’t still owe the debt. It only means that creditors and debt collectors can no longer sue you in court to collect the money due. Technically, you still owe the debt. So, debt collectors and creditors can still try to collect this money.
This means you still might receive calls from debt collectors. It’s important to understand that if you make a new payment agreement regarding an old debt, it can restart the statute of limitations for collections clock. At that point, the debt collector could sue you in court no matter how old the debt is.
Get Help Repairing Your Credit
If you’re working to repair your credit, you may want to pay your debt off even if the statute of limitations has ended. For example, if you live in a state that has a 3-year statute of limitations on credit card debt, this debt may still show up on your credit report for up to seven years.
Paying this debt may be the only way to repair your credit before the end of the 7-year period by possibly reducing the impact of this debt by paying it off. If this is the case, the credit card company may work out a deal with you for a lower amount. Sometimes, these companies agree to remove some of the interest accrued to receive some money. This can be a good option for low-income families looking to repair their credit.
Sign up for Credit.com today and take the first step toward understanding your credit and what factors are impacting your credit health.
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Your credit score may improve if your collection debt is reported to a new credit scoring model—FICO 9®, FICO 10®, VantageScore 3.0® or VantageScore 4.0®. Most creditors still report to old scoring models, so it’s unlikely paying off the debt will improve your credit score.
If you’ve gotten behind on payments to a creditor or lender, your debt could be sent to collections after around 120 days of missed payments. If this has happened to you, your credit score has likely taken a hit and you may be asking, “Does paying off collections improve your credit score?”
Find out what it means to have collections debt, how it affects your credit and what you can do to raise your score after a hit from collections.
In This Piece:
What Is Collections Debt?
When you default on a payment, the company you owe may sell your debt to a third-party collection agency. When this happens, it means your debt has gone to collections and debt collectors from the collection agency will now try to contact you for payment.
There are many kinds of debts that can be sent to collections, including:
Credit card payments
Student loans
Medical bills
Rent payments
Utility payments
Auto loans
Personal loans
Tax debt
The time it takes the original creditor to transfer your debt to collections varies. Some contracts may have a grace period where you can still pay your debt after it’s due. In other cases, creditors may send you to collections the day after your payment is due.
How Does Collections Debt Affect Your Credit Score?
Collections debt shows up as a negative mark on your credit and, as a result, will significantly harm your credit. This is because collections fall under the category of payment history, which accounts for 35% of your FICO credit score, making it the biggest impact on your score.
The effect on your credit may depend on what your score was to begin with. For example, a score in the 700s may take a more dramatic hit than a score in the 500s.
It also depends on the type of debt you have in collections. Recent changes to medical collection debt mean unpaid bills under $500 won’t be reported to credit bureaus, and paid medical collection debt won’t be reported, thus won’t hurt your credit score either.
The impact of negative collection marks also decreases with time and eventually falls off your report, generally after seven years, as part of the Fair Credit Reporting Act (FCRA).
Does Paying Collections Help Your Credit Score?
Paying off collections can help your credit score if the lender reports to new credit scoring models, including FICO 9®, FICO 10®, VantageScore 3.0® and VantageScore 4.0®. These models ignore collections with a balance of zero, so you’ll see a boost in your score if you pay off collection debt.
However, if your lender reports to older scoring models, which most do, it’s unlikely you’ll see a difference in your score even if you pay the debt, as these models don’t lessen a negative mark from collections regardless of if it’s marked as paid or unpaid.
How to Remove Collections from Your Credit Report
There are a few methods for removing collections debt from your credit report. Keep in mind that results may vary as each individual’s financial situation is different. Here are a few ways you can attempt to get collections removed from your report.
Dispute Errors
You have the right to dispute any items on your credit report that are inaccurate or outdated. Here are the steps to take to find and challenge errors on your credit report:
Get copies of your credit report from all three bureaus—Equifax®, Experian® and TransUnion®. You can get one free copy per bureau a year at AnnualCreditReport.com.
Look for mistakes like collections past the statute of limitations or debt that isn’t yours.
If you find a mistake or need more information, send a 609 letter. This letter requires the bureaus to verify or correct items you’ve called out within 30 and 45 days.
Once you have proof of an error, you can write a dispute letter asking for the incorrect item to be removed. This can be filed online with the major credit bureaus or mailed.
Make sure to keep a record of all correspondence with bureaus.
Removing mistakes on your credit report can help raise your credit score, depending on various factors. However, the process of disputing errors can be difficult and long. Consider using a professional credit repair service that has experience working with credit bureaus, especially if you have a lot of inaccurate collection accounts or a more complicated situation.
Ask for a Goodwill Deletion
If you have an otherwise positive credit history and a long-standing relationship with the creditor of your collection, you may be able to receive a goodwill deletion.
This process begins with writing a goodwill letter to the original creditor of the collections, which should include:
Time with creditor
Positive items on your credit report
Intention to stay in good standing
Request for a line item adjustment
If successful, the creditor will delete the item you’ve highlighted as a gesture of goodwill.
Write a Pay for delete Letter
You may be able to arrange a deal with your collection agency to delete the collection account in exchange for payment. This is done with a pay for delete letter.
Keep in mind that not all agencies accept pay for delete letters, especially banks or larger creditors. Collection agencies tend to sell debts, which means your debt may end up with a new agency where you can try this method again.
To write a pay for delete letter, include the following information in your letter:
Dates
Proposed payment amount (can be less than the amount owed)
Terms of negotiation
Before resorting to this method, make sure the debt is verified as yours with a 609 letter. Also, make sure to get any communication from the collection agency documented in writing and keep a copy of your letter.
Is It Worth It to Pay Off Collections?
While paying off collections may not always improve your credit score, it can have other financial benefits. Additionally, there are potential consequences for not paying collections. Ultimately, the decision depends on your financial situation and goals. Here are some reasons to pay your collection debt:
Dodge lawsuits: If you don’t pay off your collection debt, the debt collectors may sue you.
Avoid interest and fees: You may rack up additional interest and fees on this debt.
Secure future loans: Some lenders won’t work with anyone with collections on their credit report. They can be flexible if you can prove you have paid the debt or a repayment plan is in place.
Increase credit score: Depending on your circumstances and credit reporting model, you may be able to increase your credit score by paying the debt.
If your debt has already passed the statute of limitations, debt collectors most likely won’t be able to continue asking for repayment or pursue legal action against you.
However, making a payment or a written acknowledgment of the debt could restart that time period. Once the time period restarts, you could be sued for the debt again. So, if you decide to pay the debt, it’s best to pay it all at once instead of partial payments to avoid restarting the statute of limitations.
How to Improve Your Credit after Collections
If none of the above methods for removing collections from your credit report worked for you, there are other ways to improve your credit. Here are some ways to repair your credit after collections:
Pay on time: Pay your other bills on time to avoid more collection debt and to positively affect your credit.
Try to keep your credit accounts open: Credit age is an important factor for your credit score, and closing an old account can decrease the average age of your accounts and lower your score.
Pay down credit card balances: If you have a large credit card balance, paying down that balance can help lower your credit utilization rate and raise your score.
Think before opening new lines of credit: When you apply for credit, a hard inquiry is made on your report, which lowers your score.
Use a credit repair service: Professional credit repair companies can help you address errors on your report and find other ways to increase your score.
It’s a good idea to follow these tips even if your collection debt is reported to a newer credit scoring model, as it still may take time to see improvements to your credit score.
Debt Collections FAQ
Have more questions about debt collections? Check out the answers to these common collections questions.
What Are Your Debt Collection Rights?
If you haven’t found out already, debt collectors can be very persistent. It’s important you know your debt collection rights and how a debt collection agency is legally allowed to handle your accounts and communicate with you.
As outlined by the Fair Debt Collection Practices Act (FDCPA), debt collectors have to follow these guidelines:
Written Notice: Debt collectors must provide written notice with information about your debt within five days of contacting you.
Time and place: They can’t contact you before 8 a.m. or after 9 p.m. They also can’t contact you at work if you’ve communicated you’re not allowed to take personal calls at work.
Harass or abuse: Collection agencies can’t yell at you, threaten violence, or use obscene language.
Deception: They can’t lie about their identity, how much you owe, your legal rights, or any other form of deception.
Privacy: Debt collectors can receive your contact information (address, phone number, work address) from certain people, but they can’t contact people more than once. They can only contact your spouse, guardian, or attorney.
Attorney correspondence: If you’re being represented by an attorney, debt collectors may only communicate with your attorney once they’re aware of your representation.
If a debt collector has infringed on any of these rights, you can file a report with your state’s Attorney General’s office or the Federal Trade Commission (FTC).
How Long Will Collections Debt Stay on My Credit Report?
Collections debt stays on your credit report for at least seven years as part of the FCRA, regardless of whether you’ve paid the debt or not.
The debt doesn’t go away necessarily, but the negative item will drop off your credit report eventually, and you can no longer be sued for the debt after the statute of limitation time period passes.
How Many Points Does a Collection Drop Your Credit Score?
A collection debt’s impact on your credit score varies, but generally speaking, it could drop your score significantly. The impact depends on your initial score, with higher scores taking a bigger hit than lower scores. Multiple collections on your credit report could drop your score even more.
How Many Points Will My Credit Score Increase When I Pay off Collections?
Your credit score may not increase at all when you pay off collections. However, if your debt is reported using a newer credit scoring model, your score may increase by however many points were impacted by the collections debt.
It would also depend on the time passed since getting the negative mark. You’re more likely to see a positive increase from paying off the collection if it was recently incurred than a collection you’ve had for six years since the effects on your credit lessen over time.
If late payments are hurting your credit score, you may need a little extra help understanding how your credit is impacted and what you can do about it. Try ExtraCredit to help track your credit score, with other features available to help you work to meet your credit’s full potential.
If you stop making payments on your debts, creditors usually have a set amount of time to pursue repayment. After that time, they can no longer legally pursue the debt. But that doesn’t mean you can just forget about the debt. Learn more about how debt collection and statutes of limitations work.
In This Piece
How Does Debt Collection Work?
If a creditor doesn’t believe it can recover a debt, it may sell that debt to a collection agency. These agencies specialize in debt recovery and have the resources, staff, and time to pursue old debts more aggressively than some original creditors.
A collection agency can also list an old debt as a new line on your credit report with a continuation of the original debt date.
When you default on debt, the creditor may close your account and report it as a closed account with negative payment information. When the account is sold to a collection agency, the collection agency owns the account and can list it as a collections account on your credit report.
As long as the collection agency can document the debt, it has a legal right to pursue it. That includes attempting to sue you for the debt and following up with methods such as wage garnishment if it receives a judgment for the debt.
What Are the Four Types of Debt?
Debt generally falls into a few main types. Each type works fairly similarly when it comes to debt collection.
If you miss payments on a debt, it can become delinquent and go to collections no matter how the original account was set up. Here are the main four types of debt:
Secured. Secured debt means you put something up as collateral to borrow against. That makes debt collection simple: the collateral can be repossessed.
Unsecured. Unsecured debt doesn’t involve collateral, so collection can get a bit messy. This can include lawsuits and wage garnishment.
Revolving. Revolving credit involves an open line of credit you can continue to draw on as you pay it off. Credit cards are a common form of revolving credit. This type of debt is usually unsecured, but secured options are available for people with poor or no credit.
Installment. Installment debt is a one-time loan paid back via a series of payments. Examples include auto loans, student loans, and mortgages. Installment debt can also be secured or unsecured.
Can a Debt Collector Collect After 10 Years?
In most cases, the statute of limitations for a debt will have passed after 10 years. This means a debt collector may still attempt to pursue it (and you technically do still owe it), but they can’t typically take legal action against you. If you notify them that the debt is past the statute of limitations and request they not contact you again, they likely won’t.
It also depends on when you made the last payment. The statute of limitations for most debts starts when you go into default. If a debt is 10 years old but you were making payments until three years ago, the debt is likely still within the statute of limitations and can be pursued by a debt collector.
However, it’s important to note that every case is unique and the statute of limitations on various forms of debt is different in each state. Understanding what the rules in your state are and how they might apply to your specific debt situation is important. Contact a lawyer for your unique situation if you have questions.
What “Restarts” the Clock on Old Debt?
Many people make the mistake of believing the statute of limitations on debt starts when they open an account. In reality, the countdown starts when you miss a payment or make your last payment.
For example, imagine you have a credit card you opened in 2010. You used the account and paid as agreed for five years. In 2015, something happened that changed your income and ability to make payments, and you stopped paying on the credit card debt. Depending on which state you’re in, the statute of limitations could be from three to 10 years. If the state has a six-year statute of limitations, that debt would have been collectible using the legal system until 2021—six years after the last activity on the account. Note that some debts have an even longer statute of limitations in some states, such as promissory notes, revolving credit, or legal oral contracts.
You can also inadvertently reset the clock on a statute of limitations by making an agreement to pay or paying a partial amount on a debt. In most cases, the clock resets starting at that date. It’s important to factor this point into any negotiations or repayment plans. If the statute of limitations is almost up, it may not be in your best interest to make any payments. However, if there’s still a lot of time left for creditors or collectors to sue, it may be wise to start making payments.
Having said that, an unpaid debt will stay on your credit report for about seven years, even if the time clock has run out.
How Long Can a Debt Collector Pursue an Old Debt?
In some states, a collection agency cannot try to collect at all once a debt is past the statute of limitations. In other states, they cannot sue you, but they may still try to collect the debt, which can include calls and written requests.
Some debt buyers—companies that buy and try to collect very old debts—still go after borrowers and might even take them to court. If they do this knowing that the debt is past the statute of limitations, they may have violated the Fair Debt Collections Practices Act. But they also know that most borrowers who are sued for old debts won’t show up in court, and the judge will issue a default judgment.
If your debt is past the statute of limitations at this point, you can re-open the default judgment and ask the judge to vacate it because it is time-barred. The process is relatively straightforward, but you may want to consult with an attorney to ensure it’s done correctly.
Always respond to legal summons. Judgments may give collectors additional collection powers, such as access to the money a debtor has in their bank account or the ability to garnish wages to collect the judgment. To prevent this, all a borrower has to do is appear in court at the appointed time and explain that they have a time-barred debt. If that is correct, the lawsuit will be dismissed.
It’s important to note that the statute of limitations is not the same as how long the debt appears on your credit report. The timeline for debt to stay on your credit report is often seven years, but again, this depends on your activity with the debt. If the debt was sold by the original lender at six years, and you made a payment with the new debt buyer, it could restart the clock.
What Is a Time-Barred Debt?
Time-barred debt refers to debt that’s beyond the statute of limitations. It simply means that the debt is not legally enforceable. It doesn’t mean you don’t owe the debt if it was legitimate to begin with. It means the creditor or collector can’t use the legal system to force you to make good on the debt.
According to the Federal Trade Commission, whether or not collectors can continue to contact you about a time-barred debt is up to various state laws. Some states do make this illegal. And in any state, a debt collector can’t sue you, threaten to sue you, or harass you over time-barred debt.
If you’re being contacted by a creditor about a time-barred debt, you can ask them to stop. The FTC recommends sending this request in writing by mail.
When Does the Clock Start on the Statute of Limitations for Debt?
Many people make the mistake of believing that the statute of limitations on debt starts when they open an account. In reality, the countdown starts when you miss a payment or make your last payment.
For example, imagine you have a credit card you opened in 2000. You used the account and paid as agreed for five years. In 2005, something happened that changed your income and ability to make payments. You stopped paying on the credit card debt in July 2005.
Depending on which state you’re in, the statute of limitations could be from three to 10 years. Let’s say the state in question had a six-year statute of limitations. The debt would be collectible using the legal system until August 2011.
You can also inadvertently reset the clock on a statute of limitations by making an agreement to pay or paying a partial amount on a debt. In most cases, that resets the clock starting at that date.
What Debt Isn’t Subject to the Statute of Limitations?
Time-barred debt refers to debt that’s beyond the statute of limitations. It doesn’t mean you don’t owe the debt if it was legitimate to begin with, but the creditor or collector can’t use the legal system to force you to make good on the debt.
What Effect Does Bankruptcy Have on Old Debt?
Bankruptcy means creditors can’t legally pursue debt collection of any credit debt in the bankruptcy. The debt also can’t be sent to a collection agency, and almost all collection activity, including legal action or wage garnishment, is prohibited. If you’re contacted about paying a debt after filing for bankruptcy, it’s a good idea to turn the matter over to your attorney to handle. Some debts can’t be discharged, such as student loans, taxes, and child support, even when you declare bankruptcy.
Negative payment history and bankruptcy can cause major damage to your credit score. So even if you’re off the hook for a debt, you still have to consider your credit and how you can start to build it back up.
What to Do If You Are Contacted About an Old Debt
If you’re contacted about an old debt, it doesn’t mean you should automatically pay it. Remember, agreeing to terms and providing a payment can restart the clock on an old debt, and it’s important to be aware of your rights as a consumer. Instead, take the steps below to see if you need to pay the debt and what your options are.
1. Ask the creditor to send you written notice of the debt.
This is required under the federal Fair Debt Collections Practices Act even if you don’t ask, but asking is a good first step. Scammers will say they aren’t allowed to send a notice or will try to email instead, which helps you weed out illegitimate callers. By keeping the initial phone conversation to a minimum, you may avoid saying or doing something that could hurt you later on with legitimate collectors.
2. Validate the debt.
Once you receive written notice of the debt, you have 30 days to request validation of the debt. Mail your request to the creditor or collections agency via a certified letter and ask them to validate the debt. You don’t have to give a reason for your request. You can simply say, “I dispute this debt. Please validate it.”
Tip: If the debt isn’t yours, you may want to reach out to a credit repair organization to help you work to challenge the debt and request it be removed from your credit report.
3. Confirm that the debt is within the statute of limitations.
While you’re waiting for the response from the bill collector, contact a consumer law attorney or your state attorney general’s office to confirm the statute of limitations for the debt. Consumer law attorneys who regularly represent consumers in cases against debt collectors often provide a free consultation.
4. Decide on an action.
Once you receive validation of the debt and confirm whether it’s inside or outside the statute of limitations, you typically have three main options.
Pay it. If you know you owe the debt and you can pay it, you can do so. Make sure you keep written records of the amount due and your payment. Sometimes these old debts get sold to more than one collection agency, and if you get another call about this debt, you want to have proof you’ve paid it.
Settle it. If you know you owe the debt and want to try to make good on it, but you can’t pay the full amount—or if the debt has been inflated by fees— you may want to negotiate to settle it for less than the full amount due. This is tricky, though, because once you start negotiating, you could reset the statute of limitations and end up being sued for the entire debt. That could lead to wage garnishments or other issues. If you want to go this route, your best bet is to talk with an attorney first.
Send the collector a letter telling them to leave you alone. You have the right to ask a debt collector to stop contacting you. Once you do that, they are only allowed to contact you to tell you if they are taking legal action against you. If you know the debt is outside the statute of limitations, state that in your letter and tell them not to contact you again.
Do Time-Barred Debts Show Up on Your Credit Report?
Time-barred debts can show up on a credit report. Negative items such as missed payments and collections accounts stay on your credit report around seven years. Many state statutes of limitations on debt are less than seven years.
Can a Collection Agency Report an Old Debt as New?
A collection agency can list an old debt as a new trade line on your credit report. It works like this:
You have a loan, credit card, or other debt. It’s listed as a tradeline by your creditor on your credit report.
You default on that debt. The creditor closes your account. It’s now listed on your credit report as a closed account with negative payment information.
The original creditor eventually sells the account to a collections agency.
The collections agency now owns the account and can list it as a collections account—a separate tradeline—on your credit report.
Debt Collections and Credit Reports
One of the best ways to protect yourself against old debts cropping up and creating problems is to keep an eye on your credit report. Sign up for ExtraCredit® for a proactive look at your credit reports and scores so you can take care of issues before they become legal problems.
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You’ve picked out what you think is the perfect secured credit card. It has the deposit limit you’re looking for, the right annual fee, and it even offers rewards. Imagine your surprise when the company denies your application. Can that even happen with a secure credit card?
Unfortunately, the answer is yes. But a rejected application doesn’t mean there’s no way forward.
What to Do if You’re Denied a Secured Credit Card
First things first: Don’t get too bummed out. Credit card denials happen all the time. According to a 2022 Salary Finance survey, 33% of polled applicants were denied credit cards in the past year. But there are simple steps you can take to make sure you find a solution that works for you.
1. Determine Why the Credit Card Company Denied Your Application
If you get a denial letter, your first question is likelywhy. Credit card companies want your business, so there’s usually a clear reason. Check your initial notification for the legally required explanation. It may be near the words “adverse action” or “adverse action notice.” But if you still have questions, you can call the customer service line and speak with a representative.
While you’re less likely to face denial when applying for a secured credit card, there are still a few reasons you could get rejected.
You didn’t meet income requirements. Even with a secured credit card, you’re still required to meet a minimum income threshold. Credit card companies want to know you can pay them back, and that requires a consistent form of income.
There was an identity verification issue. If the credit card company can’t verify you’re the one applying, they can’t approve the application.
You have too much debt. If you already have high debt, credit card companies are often weary about allowing you to take on more. You can read more in our article on debt-to-income ratio.
You don’t have a good enough credit score. Yes, even some secured credit cards have a minimum credit requirement. This requirement is often low, but if you still don’t hit that number, it signifies to credit issuers that you may not be able to manage credit.
You can’t pay a deposit. Most secured credit cards require a deposit. That’s what secures your credit line rather than your credit profile. If you can’t come up with the money (often a few hundred dollars), you don’t qualify for the card.
2. Review Your Credit Report
It’s becoming more common for secured credit cards to require no credit check at all. Still, some do. If an issuer denies you due to a poor credit score or history, your first step is to get your hands on your full report.
By law, you can get full credit reports from all three agencies once per year at AnnualCreditReport.com. However, at the beginning of the COVID-19 pandemic, the three major bureaus began offering weekly credit reports, which you can still access for the time being.
Look through the report, checking for any errors, such as misreported debt amounts or incorrect debt collections bills. Verify everything in your report is 100% accurate. These errors — particularly if they relate to misreported debts — can lead to a denial.
3. Address Credit Issues or Errors
If you find any, disputing credit report errors is the next step. Submit disputes either online through Equifax, Experian, and TransUnion’s sites or by mail. The Consumer Financial Protection Bureau has dispute forms for each credit union.
If you received a denial because your credit score is too low and disputing errors doesn’t raise it, you have options.
One way to raise your credit score quickly is to pay down debt as fast as possible. That’s easier said than done, but checking off your debts one by one can help improve your credit score.
There are several strategies to help you pay off debt fast. For more information, see our article on the avalanche, snowball, and snowflake methods.
4. Consider Alternative Credit-Building Options
At the end of the day, a denial may mean a secured credit card isn’t the right option for you. Thankfully, secured cards are far from the only credit-building product on the market. There are alternatives, such as:
Credit-builder loans. Credit-builder loans are a unique product designed to help you build credit from scratch or rebuild poor credit. Unlike a traditional loan, you don’t get access to the funds until after you’ve already paid it off. In the meantime, your lender stores your money and reports your (hopefully timely) payments to credit bureaus.
Becoming an authorized user. An authorized user is someone who has access to another person’s credit card but doesn’t bear the responsibility of paying it off. If you become an authorized user on a family member’s card, your credit can benefit from their on-time payments.
Store credit cards. Some store credit cards don’t require credit checks or have few credit requirements, making it easier to get approved. Pick a store you visit frequently, such as Target or Walmart, and put your usual purchases on that credit card, making sure to pay it off regularly.
5. Reapply or Explore Other Secured Credit Cards
Despite all your research, you may not have applied for the right secured credit card. There are dozens to choose from, and approval may be a lot easier if you apply for a different one.
If it’s a credit issue, focus on secured credit cards with no credit requirements, such as the Discover it Secured Card and Capital One Platinum Secured.
If it’s providing income information you’re worried about, first consider whether a credit card is right for you and whether you can handle regular payments. That said, cards like the OpenSky Secured Visa Card have a high approval rate and very few qualification requirements.
If the card you originally applied for is the secured card of your dreams, your best bet is to improve your credit or fix the issue that caused your denial and try again later. With a few months of dedicated work on your score, you are more likely to get the approval you’re looking for.
Final Word
A credit card denial is far from the end of the world, though it might feel like it for a second. There are reasonable steps you can take, such as improving your credit, applying with a different lender, and addressing any potential errors on your credit report.
Also, think about alternative credit card options. Although a secured credit card can seem like the obvious first option when you have bad credit, there are unsecured credit cards for bad-credit customers, student credit cards for college students who want to start building credit, and even prepaid cards for those just looking for something swipeable to pay with.
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Christopher Murray is a professional personal finance and sustainability writer who enjoys writing about everything from budgeting to unique investing options like SRI and cryptocurrency. He also focuses on how sustainability is the best savings tool around. You can find his work on sites like Bankrate, Money Crashers, FinanceBuzz, Investor Junkie, and Time.
What Happens When a Bill Goes to Collections? – MintLife Blog
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credit score. You will then be contacted by phone and in writing regarding the details of the charge-off.
In this guide, we’ll explore what happens when a bill goes to collections as well as what to expect during the payoff process. You can still redeem your credit score by paying down your debt as quickly as possible and staying diligent with your other accounts.
What Is a Collection?
The original lenders—such as the credit card company, mortgage lender, or doctor’s office—turn to collection agencies when they no longer expect to receive your payment. Collection agencies either act as a middleman to retrieve the debt or purchase the debt from the lender for a fraction of the original amount. The lender then writes the amount off as a loss to their business and passes responsibility off to the agency.
Collection agencies purchase your debt for a smaller percentage of the original amount since they take on the risk that the money will not be repaid. This percentage varies based on a series of details, including the age and type of debt. Often, the higher the risk the debt will not be repaid, the less the agency pays.
When does a bill go to collections? A lender will typically sell the debt between 30 and60 days of delinquency, though they may not tell you that this occurred until after the transfer. Medical bills will not be transferred until they reach 180 days of delinquency due to the National Consumer Assistance Plan.
Once a lender sells the debt to a collections agency, you will receive a phone call alerting you of the change. Within five days of the initial notice, you will receive a physical letter that outlines the amount owed and how to pay or dispute the bill. Agencies do not have the right to collect fees or interest on the amount, nor are they allowed to threaten or intimidate you to pay the bill. The debt collectors can continue to pursue the amount depending on your state’s statute of limitations. The length varies between three to ten years depending on the laws of your state.
How Can a Bill in Collections Affect My Credit?
Payment history is one of the top contributing factors to your credit report, accounting for over a third of your credit score. Lenders want to be able to see that you’ve managed your finances in the past. Missed and lapsed payments that have gone to collections could be seen as a sign of financial instability. The effect on your credit score comes down to how late the payment is, the amount due and the type of debt.
When unpaid bills are sold to collection agencies, the negative mark can stay on your credit score for up to seven years. The starting date is determined by the last time the bill was brought current. For example, notes on defaulted bills can remain on your credit for seven years after the last time you made a payment on the loan in question.
It is important to look at your credit report on occasion to ensure these negative marks do not appear by accident. If the collections agency or lender made a mistake in reporting the information, you can dispute the debt to have your report updated or the note removed.
As we mentioned earlier, the National Consumer Assistance Plan keeps medical debt from appearing on your credit report before 180 days of delinquency. This allows patients to negotiate with their doctors and insurance companies, many of which will offer payment plans when the bill is too high to pay in full.
How to Handle Accounts in Collections
Understanding what happens when your debt goes to collections can be daunting. Remember that you must receive all the details in writing within five days of first receiving notice. Once this arrives, verify the details with your own payment history and accounts. Review the Fair Debt Collections Practice Act if you’re concerned your collection agency is overstepping their bounds. Collectors are not, for example, allowed to intimidate you or call at unreasonable hours.
If all information is confirmed, you can approach the payoff in several ways. Set up a payment plan with your collection agency by determining a practical timeline with your own finances. If you can afford $50 a month for the next year, speak to your agency about this option and request any agreement in writing before proceeding. Avoid giving your bank account number or setting up automatic debits with the collection agency and clearly state how you plan to pay off the amount.
Dispute any inconsistencies within 30 days of collections notification. Collections does not have the right to list the debt on your credit report during the investigation. The Consumer Financial Protection Bureau has prepared sample letters for disputing or requesting clarification from a collection agency.
Once you’ve done your due diligence of requesting a payment plan and paying down the debt to your ability, the statute of limitations laid out by your state determines how long a collection agency can pursue you. A collection agency can sue you for unpaid debt, but you may have a case to have the lawsuit dismissed with legal assistance if the debt is outside the statute of limitations.
If a bill goes to collections, you do have options. Keep yourself informed about your rights as you work with collections agencies and be sure to request all agreements in writing. You can also track your credit as you make a plan for paying down your debt. This allows you to regain control after a temporary moment of financial instability.
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Sacramento, California, USA – February 25, 2011: Facebook.com’s homepage displayed in a Firefox browser on a computer monitor. Facebook is the world’s most popular social networking website.
Even when we strive to meet all our financial obligations, unexpected life events can get in the way. Cash flow does not always line up with our bills, especially when faced with sudden medical expenses or a drop in income. After a set period of time, lenders may send unpaid debts to a collection agency.
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The siren song of the credit card is music to our ears lately. When it comes time to pay the bills, we Americans are reaching for the plastic more than ever. With more people using credit cards to pay for food and rent, Americansâ total credit card debt reached a record $930 billion at the […]
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