It’s no secret that debt collections are bad for your credit report. Any past due account, debt collections included, can have a negative effect on your credit score for as long as it's listed on your credit report.
Potential creditors and lenders question your creditworthiness when they see collection accounts on your credit report, especially recent collections. Because of that, you might find it harder to get approved for new credit cards and loans.
If you’re working on repairing your credit, or just cleaning up your credit report, you might question whether you should pay a collection, especially if it's an old one. Here are some factors that play into your decision.
The Statute of Limitations
After an account has been inactive for a long period of time, a debt becomes time-barred, and debt collectors can no longer sue you for it. If the statute of limitations has passed, you have a valid defense against paying the collection, but it's up to you to prove the statute of limitations has passed if they do sue you. Find out the statute of limitations in your statehelp decide whether you should pay an old debt.
Note
The statute of limitations varies from 3 to 15 years depending on your state and the type of debt.
Note that makinga partial payment,a payment arrangement, or accepting a settlement offeron an old debt can restart the statute of limitations. Restarting the statute of limitationsgives the creditor or debtcollector more time to sue you for the debt. Payments do not, however, restart the credit reporting time limit which is seven years for most debts. By comparison, the credit reporting time limit is the amount of time a debt can be listed on your credit report.
A Moral Obligation to Pay
If the debt is legitimately yours, the right thing to do is repay it. You’ve already consumed the goods or services financed by the debt, it’s your responsibility to pay for it. Can your employer get away with withholding a month’s salary? The same should be true for debt.
For old debt collections, you can have the debt collector validate the debt, (i.e.,send proof that the debt is yours) if you have doubts about whether the debt is legitimate. Your request for proof should be made in writing.
Will It Impact Your Credit Score?
As debts age, they impact your credit score less. Unfortunately,it's hard to predict what exactly will happen to your credit score after paying the old debt.Paying an old debt may not improve your credit score, especially if it's several years old. The good news is: FICO says that paying an old debt won't hurt your credit score, so that's one less worry about paying old debts.
FutureCredit Card or Loan Applications
You may find it difficult to have new applications approved as long as you have outstanding (negative) debt on your credit report. Or, if you get approved, you may not get a good interest rate.
If the debt is still listed on your credit report, it's a good idea to payit off so you can improve your credit card or loan approval odds. Keep in mind that paying the debt won't remove it from your credit report (unless you negotiate a pay for delete), but it does look better than the alternative. On the other hand, if the debt is going to drop off your credit report in a few months, it may be better to just wait and let it fall off.
You Need to Do Business With Them Again
Credit scores and debt lawsuits aside, you may have to pay an old collection if you want to open an account with that business again. For example, you may have an old cable bill that's fallen off your credit report and has passed the statute of limitations. If you want to re-establish service with that company, you'll probably have to clear up the old balance first.
Note
Some utility companies may require you to pay a deposit in addition to the outstanding balance to re-establish services.
Benefits of Paying the Old Debt
You may not want to pay off old debt because you'd rather spend the money on something else. However, there are benefits to biting the bullet and paying what you owe.
- You have no unpaid collections influencing your credit score. Paying off a collection account gives you points in the payment history portion of your credit score.
- Your debt-to-income ratio decreases. When you eliminate a debt, you decrease your debt load and your debt-to-income ratio. It is good for your overall financial health.
- Lenders and creditors will be more willing to give you new credit when you have no outstanding obligations. Many lenders, especially mortgage lenders, require you to take care of all unpaid debts before they’ll offer a loan to you.
Frequently Asked Questions (FAQs)
Are paid collections removed from my credit report?
Even if you completely pay off the debt you owe, it will still be on your credit report. It generally takes seven years for this to eventually fall off. However, after paying off the collection agency, that will be reflected on your credit report and score. This could potentially improve your score and your likeliness to get a loan, depending on the lender you use.
How can I start paying off old debts?
Paying off old debt and working with collection agencies can be intimidating. Whether you are going at it alone or working with a credit counselor, it's essential to know how much you owe, who you owe, and when the last payment date you missed was. From there, you will be able to start making plans on how much you can afford to pay at a time and when you could finish paying off the debt.
FAQs
In most states, debt collectors can still attempt to collect debts after the statute of limitations expires. They can try to get you to pay the debt by sending you letters or calling you as long as they do not violate the law when doing so. They can't sue or threaten to sue you if the statute of limitations has passed.
Should I pay old debt in collections? ›
Paying is often a good idea, not only because you presumably owe the debt they're seeking or even because it will get the bill collectors off your back. There's a chance, if no guarantee, that paying off an account in collections could benefit your credit score.
Should I pay a collection that is 5 years old? ›
The best way is to pay
Most people would probably agree that paying off the old debt is the honorable and ethical thing to do. Plus, a past-due debt could come back to bite you even if the statute of limitations runs out and you no longer technically owe the bill.
How long before a debt becomes uncollectible? ›
The statute of limitations on debt in California is four years, as stated in the state's Code of Civil Procedure § 337, with the clock starting to tick as soon as you miss a payment.
What happens if you refuse to pay a debt collector? ›
If you don't pay, the collection agency can sue you to try to collect the debt. If successful, the court may grant them the authority to garnish your wages or bank account or place a lien on your property. You can defend yourself in a debt collection lawsuit or file bankruptcy to stop collection actions.
Can a 10 year old debt still be collected? ›
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.
Should I pay a 3 year old collection? ›
Paying an old collection will likely lower your score. After about two years, the scoring impact is minimal, assuming the creditor has not been attempting continually to collect. If you pay them off now, the status will change to “Paid Collection” (still bad)—with a current date.
What is the 609 loophole? ›
Specifically, section 609 of the FCRA gives you the authority to request detailed information about items on your credit report. If the credit reporting agencies can't substantiate a claim on your credit report, they must remove it or correct it.
Should I pay a 7 year old collection? ›
In most states, a credit card company can't sue you for debt that still has not been paid after seven years. However, the statute of limitations varies from state to state. Certain actions can restart the clock and add additional time during which the creditor can sue as well.
What is the 11 word phrase to stop debt collectors? ›
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
A charge-off can lower your credit score by 50 to 150 points and can also look very bad on your credit report. It signals to potential lenders that you could skip out on your debt obligations for extended periods of time.
Do I have to pay a debt from 7 years ago? ›
For most debts, the time limit is 6 years since you last wrote to them or made a payment. The time limit is longer for mortgage debts. If your home is repossessed and you still owe money on your mortgage, the time limit is 6 years for the interest on the mortgage and 12 years on the main amount.
Can you dispute a debt if it was sold to a collection agency? ›
Can you dispute a debt if it was sold to a collection agency? Your rights are the same as if you were dealing with the original creditor. If you do not believe you should pay the debt, for example, if a debt is stature barred or prescribed, then you can dispute the debt.
How to get out of collections without paying? ›
You cannot remove collections from your credit report without paying if the information is accurate, but a collection account will fall off your credit report after 7 years whether you pay the balance or not.
What happens if you ignore debt collectors forever? ›
Even if you let all of their phone calls go to voicemail, debt collectors are relentless and may try to contact you online through social media platforms like Facebook, Instagram, and Twitter. Ignoring or blocking a debt collector will likely result in a collections lawsuit filed against you in court.
Will a debt collector sue me for $500? ›
Collection agencies usually won't sue you for a debt of less than $500. While every collection agency has a different policy regarding debt lawsuits, you should feel reasonably safe from a legal claim if you owe less than $500 on a debt. However, if you receive a court summons from a collection agency, don't ignore it.
Will paying off old collections raise my credit score? ›
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.
Should I pay a debt that is 10 years old? ›
Paying your debts after the statute of limitations expires
If a debt collector can no longer try to collect because the statute of limitations on the debt has passed, you technically still owe the money — the debt collector just can't sue to enforce the debt. You could decide to repay all you owe anyway.
Will paying off old debt improve credit score? ›
While paying off your debts often helps improve your credit scores, this isn't always the case. It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. However, that doesn't mean you should ignore what you owe.
Should I pay collections after 7 years? ›
Although the unpaid debt will go on your credit report and have a negative impact on your score, the good news is that it won't last forever. After seven years, unpaid credit card debt falls off your credit report. The debt doesn't vanish completely, but it'll no longer impact your credit score.
