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
You aren't legally required to repay debt that has passed the statute of limitations in your state. However, you may need to appear in court to prove the debt has expired. Never give personal information or pay over the phone if a debt collector contacts you.
Do you have to pay old collections? ›
Debt doesn't usually go away, but debt collectors do have a limited amount of time to sue you to collect on a debt. This time period is called the “statute of limitations,” and it usually starts when you miss a payment on a debt. After the statute of limitations runs out, your unpaid debt is considered “time-barred.”
What happens if I don't answer debt collectors? ›
If you receive a notice from a debt collector, it's important to respond as soon as possible—even if you do not owe the debt—because otherwise the collector may continue trying to collect the debt, report negative information to credit reporting companies, and even sue you.
Should I pay a 5 year old collection? ›
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.
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.
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.
How long before a debt becomes uncollectible? ›
Statute of limitations on debt for all states
| State | Written | Oral |
|---|
| California | 4 years | 2 |
| Colorado | 6 years | 6 |
| Connecticut | 6 years | 3 |
| Delaware | 3 years | 3 |
46 more rowsJul 19, 2023
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.
What's the worst a debt collector can do? ›
The worst thing they can do
If you fail to pay it off, the collection agency could file a suit. If you were to fail to show up for your court date, the debt collector could get a summary judgment. If you make an appearance, the collector might still get a judgment.
How do you outsmart a debt collector? ›
You can outsmart debt collectors by following these tips:
- Keep a record of all communication with debt collectors.
- Send a Debt Validation Letter and force them to verify your debt.
- Write a cease and desist letter.
- Explain the debt is not legitimate.
- Review your credit reports.
- Explain that you cannot afford to pay.
Paying off old debts before they reach the statute of limitations or credit reporting deadline can positively influence your payment history, a significant factor in your FICO score. This move can boost your credit score and contribute to a healthier credit profile.
Should I settle a 7 year old debt? ›
Why you should try to settle your debt. If you fail to make payments on your debt, your credit score can be negatively impacted. A drop in your credit score can hinder you from getting a loan to make important purchases like a home or a car. It can also prevent you from opening other credit card accounts.
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.
Can I be chased for a 20 year old debt? ›
There's no time limit for the creditor to enforce the order. If the court order was made more than 6 years ago, the creditor has to get court permission before they can use bailiffs.
Can a debt collector restart the clock on my old debt? ›
Keep in mind that making a partial payment or acknowledging you owe an old debt, even after the statute of limitations expired, may restart the time period. It may also be affected by terms in the contract with the creditor or if you moved to a state where the laws differ.
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.
What happens if you don't pay after collections? ›
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.
Do you have to pay collections after 7 years? ›
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.
Can you refuse to pay collections? ›
If you refuse to pay a debt collection agency, they may file a lawsuit against you. Debt collection lawsuits are no joke. You can't just ignore them in the hopes that they'll go away. If you receive a Complaint from a debt collector, you must respond within a time frame determined by your jurisdiction.
Does unpaid collections go away? ›
How long do collections stay on your credit report? If a creditor's information regarding an account's delinquency is valid, the collections record will exist for seven years starting on the date it is filed.
