When a debt is not paid, the creditor that is owed will eventually sell the debt to a third-party collections agency. That agency will then contact you and ask you to make payments on the debt.
But if you can’t make payments in full, should you make them at all? Does making payments restart the debt clock? For how long will the collection remain on your credit report?
There are two clocks associated with a collection, and the answer is different for each.
- The first clock tracks how long negative information—in this case, an account in collections—can remain on your credit report.
- The second clock determines how long creditors can sue you for the debt owed.
Paying a debt has different implications for each clock.
First clock: How long the collection remains on your credit report
A collection will remain on your credit report for seven years and 180 days from the original delinquency date. Typically, it does not matter what amount you owe or how you incurred the debt.
Paying off a debt in collections does not impact the time it remains on your credit report. Paid or unpaid, the collection will remain on the report for seven years and 180 days (except for in the state of New York, where paid collections remain on your account for five years from the date paid). However, this doesn’t mean you no longer owe the amount to the collection agency—it just comes off your credit report.
Second clock: How long you can be sued for the debt
According to the statute of limitations, a collections company can only sue you for a debt if it brings the case to court within a certain timeframe. This time period differs in each state but varies between three and ten years. This second clock sets a limit on filing a case with the court, and it has nothing to do with the credit reporting agencies (CRAs) or your credit report.
Once the allotted time has passed, depending on state law, a collections agency cannot sue you for the debt. But the debt is not forgiven, and the collections company is typically allowed to contact you until the debt is paid.
This clock starts from the last payment date, so unlike the first clock, payment activity will affect it. In fact, any type of payment or, in some states, a written agreement to pay the debt, can be considered activity and can restart the clock on the statute of limitations.
Should you pay a debt in collections?
Once you’ve learned that an unpaid bill is in collections, you may want to create a budget to pay off the debt as quickly as possible. Even though an account in collections will remain on your credit report, paying it off can still reflect positively on your credit history because it satisfies your commitment. Once your debt is paid off, you can add a note to your credit file so that a potential lender can see that you have handled the debt responsibly.
While you are paying off a debt in collections, be sure to monitor your other bill payments closely so that your score isn’t further impacted by late payments. If you are disputing a debt, review your rights with debt collectors under the Fair Debt Collection Practices Act (FDCPA).
Diane Moogalian is vice president of operations for Equifax Personal Solutions. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies. Diane graduated from the University of Richmond with a Bachelor of Science in Business Administration (Marketing and Economics) and earned a Certificate in International Business from Virginia Commonwealth University.
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