How Collections Affect Your Credit File

How Collections Affect Your Credit File

The last few years have seen the rise of companies promoting easy consumer access to your credit score. It’s only recently that the average consumer can have quick access to their personal credit data, something once limited to financial institutions. Even with this knowledge, most consumers are unaware of how those scores are calculated and how negative the impact of an account for collection on their credit file can be. In this blog, we are going to answer a few questions on just that.

1. How does an account for collection on my credit file affect me?

If you have an overdue account that is on your credit file, it may affect your ability to further acquire credit. This means an account for collection on your credit file could impede your ability to get: a car loan, mortgage, personal line of credit, credit card, or any other type of credit.

2. Will this account begin to affect my credit file immediately after it has been sent to collections?

There is not really a yes or no answer to this question as all collection agencies have different policies surrounding how they report to the credit reporting agencies. Some collection agencies offer a 30-45 day grace period where they will hold the account from your credit file and give you a chance to pay the account off without it being reported to Trans Union or Equifax (the two main credit reporting companies in Canada). Other collection agencies will report to those companies right away. The only way to find out for sure is to call the collection agency as soon as you are contacted by them.

3. If the account is on my credit file how long will it take to come off?

Collection accounts and most other credit histories typically remain on your credit file for 6 years from the date the account was incurred or the date of your last payment on the account. Even once you pay the account it will remain there for six years, but it is better to have the account showing as paid as opposed to unpaid.

4. Once I pay the account does it get marked paid on my credit file immediately?

In short, no it will not be marked paid immediately. There is a process for credit files to be updated so it could take 30-60 days for the payment to be reflected. What you can do in the meantime is obtain a copy of your receipt from when you paid the account. In most situations that is as good as the account being marked paid as it is proof of payment that you can provide to any potential creditor.

5. If I can’t pay my account in full and want to pay in installments does my credit file get affected by each payment?

No, paying in installments will not affect your credit file with each payment. As with payment in full, you will have to wait until the account is paid and for it to be marked as such on your credit file. That said if installments are what you can afford it is best to pay off the account any way you can rather than to let it sit as a collection on your credit file. The installments eventually will pay off the account and your credit file will be updated to reflect that once you do.

The bottom line is if you have an account that goes to collection it is important you deal with it as soon as possible. This will help to mitigate future negative impacts on your credit file and your credit score. A good credit score is a privilege not a right, you are the only person who controls your paying habits and ultimately your credit score.