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If you neglect to pay a bill for a significant period of time, your creditor may send your debt to a collection agency, which then seeks repayment from you. This can have serious — and lasting — repercussions for your credit score. Understanding how long collections stay on your credit report and how to manage them is essential for maintaining good financial health. Here’s a closer look at how debts end up in collections and how they impact on your credit.

What Are Collections?

Having a debt in collections typically means that the original creditor or lender has written your debt off as a loss and has sent it to a debt collector. The collector may be an internal team within the same company that goes after delinquent debts or a third party debt collection agency.

Most of your monthly bills (including credit cards, mortgage, auto loan, student loans, and utilities) can go to collections if you neglect to pay them for long enough. This means that bills that might not typically appear on your credit report (electric, phone, or cable, for example) could show up on your credit report as debts in collections.

There’s no set time frame as to when a lender or company will place a past-due account into collections. Generally speaking, however, creditors will wait until after 90 to 180 days of nonpayment before they will send your debt to collections.

What Happens if a Bill Goes to Collections?

Some creditors have in-house collection departments, but many will “charge off” your debt. This means the original creditor closes your account and sells your debt to a third-party collection agency. When your account is sent to collections, the balance on your original unpaid account goes to $0, and a new collections account will be added to your credit reports. Having a collection account on your credit report is one of the many things that can affect your credit score.

How Long Will Collections Stay on Your Credit Report?

Like other negative information, a collection account can remain on your credit reports for up to seven years from the date you first miss a payment to the original lender or creditor. Even if you eventually pay what you owe or settle with the company that owns your debt, the collection will typically remain on your credit reports (though it will say “Paid Collection” in the account information).

Recommended: How Long Does It Take to Build Credit?

Medical Debt on Your Credit Report

Medical debt is not included in your credit reports, provided it stays with your health-care provider. If you have a medical bill that is several months overdue, the provider may sell it to a collections agency. But even if that happens, it won’t show up on your credit reports right away.

That’s because the three major credit bureaus (Equifax®, Experian®, and TransUnion®) give consumers a one-year grace period to clear up any medical debt that’s gone to collections before listing the account in your credit reports. This waiting period allows time for bills to make their way through the insurance approval and payment process. It also gives consumers a chance to report any billing errors to their insurance company and/or health care provider, perhaps negotiate a smaller bill amount, or get on a payment plan.

More good news: Medical debts under $500 will not appear on your credit reports. In addition, medical debts in collections that have been paid off are removed from your credit reports — they won’t stick around for seven years.

Managing and Preventing Collections Accounts

One of the best ways to protect your credit reports (and credit scores) is to avoid having a debt ever go to collections. Here are some tips that can help.

•  Stay organized: Keep track of payment due dates by setting reminders on your phone or switching to autopay. A budgeting and spending app can help ensure you aren’t short on cash when it comes time to make your payments.

•  Communicate with creditors: If you’re having trouble paying some of your bills on time, it’s a good idea to contact your creditors or service providers. They may be to offer a more manageable payment plan or offer temporary relief.

•  Monitor your credit report: It’s wise to regularly check your credit reports for any inaccuracies or any accounts labeled “delinquent” (a sign they may be headed to collections).

•   Establish an emergency fun: Having savings to cover unexpected expenses, like medical bills, can help prevent debt from going to collections.

If you already have an account in collections, you’ll want to make sure the debt and collection agency are legitimate and, if so, create a plan to resolve the unpaid balance. Generally, it’s a good idea to pay off the debt in collections, either as a lump sum or payment plan, so your debt can be marked “paid” and the collection agency stops contacting you.

How Collections Impact Your Credit Report and Credit Score

Collections fall under payment history, which is the biggest factor in your FICO® Score calculation (representing about 35% of your score). People with collections on their credit reports tend to have lower credit scores than those who have no collections.

How much damage a collection account will do to your credit will depend on the size of the debt, how recent the collection is, and the overall strength of your credit profile. A collection account tells future lenders that you’ve had trouble managing debt in the past, making them less likely to offer favorable loan terms or approve you for new credit.

In general, the more recent a collection, the bigger the impact. However, over time, the damage to your credit score diminishes, especially if you maintain good credit habits, like making on-time payments and keeping credit card balances low. Also keep in mind that paid collection accounts may not affect your credit scores in the same way that unpaid collection accounts can.

Recommended: How to Check Your Credit Score Without Paying

How to Find Out if You Have Accounts in Collections

There are a few different ways you may find out that you have an account in collections.

•   A debt collector must contact you about your debt before it sends information about the debt to a credit reporting company. If you receive a “validation notice” about a debt from a debt collector, it means they have satisfied their requirement to contact you and can begin to report the debt to credit reporting companies.

•   If you aren’t sure about the status of an unpaid bill, you may want to check your credit reports. You’re entitled to a free credit report from each of the three major credit bureaus once a week through AnnualCreditReport.com. On your report, collections accounts will appear as a separate section, listing the original creditor, the collection agency, and the outstanding balance.

•   You also can contact the original creditor to learn the status of your account. Just remember that if your debt has been sold, the original creditor is no longer able to collect your debt. You’ll have to deal with the debt buyer.

•   Some credit monitoring services will automatically alert you if a new collection account is added to your report, allowing you to address the issue as soon as possible.

How Do You Remove Collections From Your Credit Report?

You generally can’t remove a collection account from your credit report unless the account is listed in error or as a result of fraud.

If you see an error on your credit report, such as an account you don’t recognize or a paid account that shows as unpaid, you can file a dispute using the credit bureau’s online process by phone or by mail. The credit bureau is required to respond within 30 days.

If you think the error is on the part of the debt collector, you can contact the collection agency using the phone number listed on your credit report. They can confirm if the debt belongs to you and provide other relevant information about the account.

If the entry is legitimate, one way you might be able to get it removed from your credit reports is to write a “goodwill letter” to the creditor that explains your situation and why you would like the debt removed. It may not work, but there’s no downside in trying.

Recommended: Why Did My Cresit Score Drop After a Dispute?

When Will Credit Bureaus Remove Medical Collections?

In 2022, the three major credit bureaus agreed to remove medical collections from consumers’ credit reports once they were paid. They also decided to exclude unpaid medical collections under $500, and to extend the time before medical bills in collections can appear on credit reports from 180 days to one year. These changes provide some relief for consumers facing medical debt, giving more time to settle the bills before they affect credit.

Medical collections that meet these criteria should have automatically come off your reports, but if they are still listed on any of your credit reports, you can file a dispute with the credit bureau.

Will Making Payments Change the Timeline?

Making payments on a collection account does not restart the seven-year timeline for when the collection falls off your credit report. The original delinquency date remains the same, even if you make partial payments. However, paying off or settling a collection account can have positive effects. While it won’t immediately remove the collection from your credit report, a paid collection may be viewed more favorably by lenders than an unpaid one. It also stops the collection agency from continuing to pursue you for the debt.

But there is another timeline to keep in mind — the statute of limitations on the debt. The statute limits how long a creditor or debt collector can take legal action against you in pursuit of repayment. The time frame depends on the type of debt and where you live but is typically three to six years. Once the statute of limitations expires, the debt becomes “time-barred,” meaning that debt is no longer legally enforceable.

If you make a payment on a time-barred debt, it can restart the statute of limitations. This means the creditor can take you to court and, potentially, sue you for the full amount owed plus interest and fees.

The Takeaway

Collections can have a significant impact on your credit score, but they don’t last forever. Typically, collections remain on your credit report for seven years from the date of delinquency, but recent changes have provided some relief for medical debt.

The best way to protect your credit is to manage your accounts carefully and be sure to pay all of your bills in full and on time. If you do have accounts in collections, taking steps to resolve them — whether through payment, negotiation, or disputing inaccuracies — can help improve your financial health over time.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Should I pay off a three-year old collection?

Paying off a three-year-old collection can be beneficial, especially if you’re looking to build your credit or apply for new credit. While paying it off won’t remove it from your credit report, it can stop further damage and prevent additional actions like lawsuits or wage garnishments. Paid collections also tend to be viewed more favorably by lenders than unpaid ones. In fact, some credit scoring models don’t include paid collection accounts when calculating credit scores.

Can you have a 700 credit score with collections?

Yes, but it’s not common. Factors such as the size of the debt in collection, how old it is, and the overall makeup of your credit profile play significant roles in determining your score. If the collection is small, paid off, or several years old, and the rest of your credit history is strong, you may be able to achieve a 700 score. Larger or recent collections, on the other hand, typically have a more negative impact on your credit.

What happens if you never pay collections?

If you never pay collections, the debt will remain on your credit report as an unpaid collection account for up to seven years, significantly harming your credit score. Unpaid collections can also lead to lawsuits, judgments, and wage garnishments. On a positive note, many states have statute of limitations in place to prevent creditors and debt collectors from suing you to collect on an older debt.

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Photo Credit: iStock/MixMedia
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SORL-Q324-022

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Seeing your credit score go down after paying off debt may seem illogical, but there are likely valid reasons for the drop, including a potential change in your credit mix or in the age of your accounts. Although a lower score may feel like a setback, rest assured the dip is usually temporary.

Let’s take a closer look at some reasons why your credit score dropped after paying off debt and what you can do to help turn things around.

Why Would My Credit Score Drop After Paying Off Debt?

Credit scores are calculated based on a variety of factors. For instance, if you’ve finally paid off a car loan and all of your other debts are from credit cards, your score might drop because you no longer have a diverse credit mix. Creditors and lenders like to see someone who’s been able to manage an array of accounts over time.

But a varied credit mix is only one of the components that make up your credit score. Read on to learn what affects your credit score and how much each factor is impacted when you pay off debt:

Credit Score Factors

According to FICO™, the credit scoring company used by 90% of the top lenders, your credit score is based on data from five different categories: payment history, credit utilization, length of credit history, credit mix, and new credit applications.

Let’s take a closer look at each one.

Payment History

Showing lenders you can consistently make on-time payments is the top factor in determining your credit score. In fact, under the FICO model, your payment history accounts for the biggest percentage of your credit score (35%).

A late or missing payment can lower your credit score anywhere from 17 to 83 points, depending on where you fall in the credit score range. Generally speaking, the higher your credit score, the greater the impact of a late payment.

Even if you’ve paid off a debt, a delinquent payment can remain on your credit report for up to seven years and negatively affect your credit score.

Credit Utilization

Credit utilization accounts for 30% of your credit score. Your credit utilization is the amount of money you owe versus the amount of credit available to you, and this configuration is called your utilization rate or credit utilization ratio.

Most lenders prefer you to keep your credit utilization ratio below 30%.

Paying off a debt typically improves your credit score, but there are instances when it could have the opposite effect. For example, if you pay off a credit card and then close the account, you may see your score fall. That’s because you now have a lower amount of available credit, which could raise your credit utilization ratio.

Length of Your Credit History

The average age of your credit accounts make up 15% of your credit score. Keeping accounts open — and establishing a track record of timely payments — can help improve your credit score. So if you’re paying off a credit card or other type of revolving debt, consider leaving the account open afterward.

Installment loans, like a personal loan, work a bit differently. When you pay off an installment loan, the account is considered closed. And if you’ve had that account for a long time, your average account age — and your credit score — could drop.

Credit Mix

As previously noted, having a variety of different types of credit, or a credit mix, counts toward your credit score. In fact, it makes up 10% of your FICO score.

Having a combination of revolving credit and installment credit can help boost your credit. But paying off a home, car, or personal loan could change your credit mix, which might cause your score to dip.

New Credit Card Applications

Applying for new credit determines 10% of your credit score. So if, for instance, you decide to open a few new credit cards to help pay off another debt, your score could take a hit. That’s because each time you apply, a hard credit check, or inquiry, is made.

When a lender does a hard credit check, they will pull your credit report from one of the three main credit bureaus: TransUnion, Equifax, and Experian. A hard inquiry can decrease your score by as much as 10 points, so if you’re trying to sign up for multiple credit cards at once, this can have a cascading effect on your score.

How to Pay Off Debt and Help Your Credit Score

There’s no hard and fast rule on how to pay off your debt and build up credit. But it’s always a good idea to make timely, regular payments on balances. Try not to use all your available credit (keep it under 30%). And if you’re overextended, consider reevaluating your purchasing habits with a spending app or other tool.

How Do I Keep My Credit Score From Dropping?

There are other strategies you can take to help prevent your credit score from falling. Here are five to consider:

•   Limit applications for new credit, especially if you’re applying for several at one time.

•   Try to avoid closing out a credit card account, even if you’ve paid off the balance.

•   Review your credit report at least once a year, and dispute any errors. You can get your report for free at AnnualCreditReport.com.

Recommended: Why Did My Credit Score Drop After a Dispute?

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

After you make a payment, most large credit issuers and lenders update your account information with the credit bureaus within 30 to 45 days. Smaller credit entities may only report a paid off debt once a quarter, so in that case, it could take several months for your credit score to update.

Ways to Increase Your Credit Score After Paying Off a Loan

In addition to making timely payments, there are several ways to build credit and boost your score.

One tactic is to take the money you were using for the now paid off loan and apply it to one or more of your credit card payments. For example, if you were only making minimum payments, try paying double the minimum each month. If this isn’t possible, even kicking in an extra $10, $20, or $30 can make a difference. Paying double the minimum doesn’t just bring down your balance. It can also lower your credit utilization ratio by increasing the available credit on that card.

Another trick: Contact your card issuer and ask for an increased credit limit so your credit utilization on that card is lower. Or consider becoming an authorized user on a loved one’s credit card account.

Recommended: How Long Does It Take to Build Credit?

How to Get Credit Score Monitoring

There are various ways to check your credit score for free.

•   Contact your credit card issuer. Most provide cardholders with complimentary access to their credit score.

•  Inquire with your bank. Many financial institutions offer customers either their FICO score or VantageScore for free.

•  Sign up with Experian. You can monitor your credit score for free through Experian, one of the three major credit bureaus.

•  Download a free money tracking app, which provides you with your score and can alert you to any changes.

The Takeaway

Zeroing out the balance on a loan or credit card can be a big stress reliever, though it may not always provide the credit score boost you were hoping for. Changes in credit mix or account age are among the reasons for a drop.

The good news is, there are ways to help protect your credit score: Pay your bills on time, keep credit card accounts open even after you’ve paid off the balance, and explore credit score monitoring services that alert you to any changes in your score.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How long does it take to rebuild credit after paying off debt?

The amount of time it takes to rebuild credit is different for everyone. For some people, it may only take three to six months, while for others it could take years, especially if credit card bills have high balances or are maxed out. Certain factors such as missed payments, which can remain on your credit report for up to seven years, or a declared bankruptcy (which can linger for up to 10 years) can keep your credit score from increasing.

Why does my credit score go down after paying off debt?

Eliminating one debt means you’ve changed your overall credit “portfolio,” which can impact some factors that go into determining your credit score. For instance, if you’ve paid off a car loan and all of your other debts are credit cards, you’ve affected the diversity of your credit mix. As a result, you may see a slight drop in your credit score.

How much will my credit score increase after paying off debt?

There’s no exact number of points your credit score will increase from paying off a debt. However, it’s possible credit scores can increase anywhere between 10 to 50 points after eliminating a credit card debt.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Credit reports contain financial records of debts you owe and ones you’ve paid off. Positive information can remain on your credit reports indefinitely. Most negative information falls off your credit after seven years, though certain types of bankruptcy filings can remain longer.

Here’s a closer look at how financial records impact your credit reports.

How Long Do Inquiries Stay on a Credit Report?

When you apply for a loan, credit card, or line of credit the lender can perform what’s called a hard inquiry. This simply means that they pull copies of your credit reports, which they’ll use to make an approval decision.

Hard inquiries show up on a credit report and they’re included in your FICO® credit score calculations. Each new inquiry remains on your credit report for two years, according to FICO. However, they’re only considered in credit score calculations for the first 12 months.
Soft inquiries occur when you check your credit reports yourself or a company pulls your credit for the purposes of prequalifying or preapproving you for a loan. These inquiries won’t show up on a credit report, and they don’t have any impact on your credit score.

That distinction is important if you’re learning how to build credit.

Recommended: How Long Does It Take to Build Credit?

How Long Does Negative Information Remain on Your Credit Report?

Negative information on a credit report is any information that’s harmful to your credit score. What affects your credit score negatively? The list includes:

•   Late payments

•   Missed payments

•   Collection accounts

•   Charge-offs

•   Judgments

•   Foreclosures

•   Bankruptcies

Generally, negative information can stay on your credit report for up to seven years. Chapter 7 and Chapter 11 bankruptcy, however, can stick around on your credit report for 10 years.

In terms of how negative items impact your credit score, age matters, according to FICO. Newer negative items, such as collections or late payments, have a more immediate impact on your scores than negative items that are several years old. A money tracker app makes it easy to track your credit and your money in real time so you can get ahead financially.

How Long Does Positive Information Remain on Your Credit Report?

Positive information can remain on credit reports indefinitely. Credit bureaus are not required to remove this information, though they may do so at the seven-year mark. Examples of positive information that can stay on a credit report, regardless of time, include:

•   On-time payments

•   Open accounts that have a $0 balance or a low balance, relative to your credit limit

•   Closed accounts that you’ve paid in full

Positive items on a credit report are a good thing, since they help your credit scores. On-time payments and low balances on credit accounts have the biggest impact overall. Making biweekly payments or increasing your credit limits are two helpful ideas for how to lower credit utilization. Using a spending app to manage your budget and expenses can also help keep credit card balances low.

How to Remove Negative Information From Your Credit Report

Negative information that’s accurate cannot be removed from a credit report. For example, if you miss several payments on a loan but get caught up later, those late payments will stay on your credit reports until you hit the seven-year mark.

Inaccurate information, on the other hand, can be removed through the dispute process. Examples of inaccurate or incorrect items you could dispute on a credit report include:

•   On-time payments that were not properly attributed to your account

•   Credit accounts that don’t belong to you

•   Paid-in-full accounts that still show a balance on your credit reports

•   Account activity relating to fraudulent activity or identity theft

You’ll need to dispute the inaccurate information with the credit bureau that reports it. All three credit bureaus — Equifax, Experian, and TransUnion — allow you to initiate credit report disputes online. You’ll need to fill out a dispute form and provide some details about the dispute.

Once the credit bureau receives the dispute, it’s required to investigate your claim and return a decision to you promptly. If the credit bureau finds that there’s an error on your reports, it’s legally required to remove or update the information.

Your credit score updates monthly for the most part. Enrolling in credit score monitoring can make it easier to track changes, including changes to your score following a dispute.

Recommended: Why Did My Credit Score Drop After a Dispute?

Do You Still Have to Pay a Debt If It Fell Off Your Credit Report?

A debt can fall off your credit report if enough time passes. However, the amount owed doesn’t go away. Creditors and debt collectors could still attempt to get you to pay if the statute of limitations hasn’t passed.

The statute of limitations on debt allows creditors and debt collectors a set window of time in which to sue you for an unpaid balance. Each state determines how long the statute of limitations applies but in all states, its expiration doesn’t remove your legal obligation to pay what you owe.

Should you pay old debts? Ethically, yes. But if a debt falls off your credit report and the statute of limitations has expired, it would be very difficult for a creditor to force you to pay via a lawsuit.

The Takeaway

Reviewing your credit reports regularly is a good way to see what’s helping or hurting your score at any given time. If you have negative items on your credit report, you might see your score drop, but those points can come back with the passage of time.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What stays on a credit report forever?

Positive information can stay on a credit report forever, as credit bureaus are not required to remove any items that help your credit score. However, credit bureaus can choose to remove positive information after seven years.

Can credit information stay on my credit report for over 7 years?

Credit information can stay on your credit report for over seven years if it’s positive. Generally, negative information cannot stay on your report for more than seven years, unless you file for Chapter 7 or Chapter 11 bankruptcy. In that case, the bankruptcy filing could stay on your report for 10 years.

Do old accounts fall off a credit report?

Old accounts can fall off your credit report after seven years if they have negative information. Positive information from old accounts or newer ones can stay on your credit reports indefinitely.

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Photo credit: iStock/PeopleImages
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q324-025

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Medical debt can be a heavy burden for individuals and families. And knowing unpaid medical bills could impact your credit can make the worry even worse.
In an effort designed to relieve some of the stress on U.S. consumers, the way medical debt is treated by credit bureaus has changed in recent years. The timeline for unpaid health-care bills appearing on your credit reports is longer than it used to be. And some of those debts may not end up affecting your credit at all.

But make no mistake: There still can be consequences if a medical bill goes unpaid for too long.

Read on for a look at when unpaid medical debt can go on your credit reports and some steps you can take to protect and improve your financial health.

Do Medical Bills Affect Your Credit?

Your medical bills shouldn’t have any effect on your credit, as long as they don’t go unpaid for too long. Most health-care providers don’t report payment activity to the credit bureaus. So unless your account goes unpaid for so long that your provider gives up and sells the debt to a debt collector, it’s unlikely your delinquent account will appear on your credit reports.

Even if the account goes to collections, it can take a year or longer to impact your credit. That’s because the three major credit bureaus (Equifax, Experian, and TransUnion) now give consumers a full 365 days to clear up a medical debt that’s gone to collections before it goes on their credit reports. This year-long grace period allows more time for medical bills to make their way through the insurance approval and payment process, and it gives consumers more time to report billing issues to their provider or the debt collector, negotiate a smaller payment, or set up a payment plan.

More good news: If the initial balance that’s gone to collections is less than $500, the debt won’t ever become part of your credit report, so it won’t affect your credit score.

How Does Medical Debt Impact Your Credit Scores?

Medical bills that you’ve paid shouldn’t appear on your credit reports at all or affect your credit scores — even if you paid the bill after it went to collections. Existing paid medical collections were erased from credit reports in 2022, and the credit bureaus no longer include this information on their reports.

If your bill in collections goes unpaid past the 365-day grace period, however, it could turn up on your credit reports, and possibly have a negative effect on your credit scores. The amount of damage can vary, depending on what scoring model you — or a potential lender — is looking at. But it’s important to note that failing to pay a bill can affect the most significant factor in determining your credit scores — your payment history. So if a medical bill with a starting balance of $500 or more lands on your credit report, you could see a serious dip in your credit scores.

How Long Do Medical Bill Collections Stay on Your Credit Report?

A typical collections account can stay on your credit reports for about seven years, whether or not you eventually pay the debt. But medical accounts are treated differently than other types of debt.

When the credit bureaus are notified that you’ve paid off a medical debt in collections, they’ll remove the account from your credit reports, and you can expect your credit scores to improve.

If you don’t pay the medical debt, however, the collections account could remain on your credit reports for a full seven years after it becomes delinquent.

Can Medical Bills Be Removed from My Credit Report?

If you believe a medical bill in collections is showing up on your credit report by mistake, you can dispute the error with the credit bureau and the debt collector who reported it. After all, it takes time to build credit, and you want to make sure your record represents you accurately.

If your debt has been in collections for less than a year, if the starting balance was less than $500, if the debt has been paid by you or your insurance company, or if you can show that the information is incorrect in some other way, you can take the necessary steps to have it removed from your credit reports.

How to Dispute a Medical Bill on Your Credit Report

To dispute a medical bill on your credit report, the Consumer Financial Protection Bureau (CFPB) recommends starting with the credit bureau that included the account. Explain in writing what you think is wrong and why — and be sure to include documentation that supports your claim. The credit bureaus can then begin an investigation. (The CFPB provides sample letters and addresses for the credit bureaus.)

You should also reach out in writing to the debt collector that furnished the information and ask that it be corrected.

Finally, if your dispute continues to go unresolved, you can submit a complaint to the CFPB.

Recommended: Why Did My Credit Score Drop After a Dispute?

How Can You Check for Medical Debt on Your Credit Reports?

There are a couple of ways you can check your credit report to see if a medical debt is showing up there.

•   If you’re paying for credit monitoring, or if your financial institution or credit card company provides a free credit score and summary each month, the information you’re looking for may be available as part of this service. You may even receive an alert if your credit score updates and there’s a significant drop.

•   You’re also entitled by federal law to receive free copies of your credit reports from the major credit bureaus at AnnualCreditReport.com.

Don’t panic if a debt collector tells you that your unpaid account will soon affect your credit scores. Remember that you have a year-long grace period to pay the debt or clear up any errors before the account will show up on your credit reports.

Does Paying Off Medical Collections Improve Your Credit?

The best way to keep medical debt from dragging down your credit scores is to make sure your bills are paid on time (by you or your health insurance company). Even if your account goes to collections, paying is still an option — and it can help push your credit scores back up.
Though the negative impact of having a collections account on your credit report diminishes with time, if the bill goes unpaid, it could sit on your record — where lenders can see it — for seven years.

Recommended: How to Build Credit

What If You Can’t Pay Your Medical Bills?

Even though it may be tempting, the worst thing you can do if you have medical debt is ignore it. Here are some options to consider if you’re wondering how to pay medical bills you can’t afford.

Ask About a Repayment Plan

Many hospitals and health-care providers will let you set up a payment schedule that allows you to pay over time. Best-case scenario, the option provided is fee- and interest-free. If you’re asked to sign up for a financing plan that will cost extra, make sure the terms work for you and that it’s still manageable within your budget.

Try Negotiating with Your Provider to Lower Your Bill

Sometimes, a health-care provider may be willing to accept a lower amount to avoid writing off the bill and selling the account to a debt buyer. (Even if the account has gone to collections, you may be able to settle for a lower payment. At that point, though, you’ll likely be negotiating with the debt collector, not the original creditor.)

See If You Qualify for Financial Assistance

Grants and other types of financial assistance are sometimes available for patients who are eligible based on their income, age, or other factors. A Google search may turn up some options, or your health-care provider or a support group may be able to pass along information.

Consider an Unsecured Personal Loan

If you can get manageable monthly payments and other terms that fit your needs, you may want to consider taking out a low-interest personal loan. Try to stay away from a loan that’s secured by your home or other assets, which could end up putting your financial well-being at greater risk if you default.

How Can You Keep Your Credit Scores Healthy Despite Challenging Medical Bills?

Small fluctuations in your credit scores are normal, but if you’re worried that an unpaid medical bill could cause a drastic drop, it’s important to keep your financial guard up. Here are some steps you can take to protect your scores:

Keep Paying Your Bills on Time

Your payment history is a big factor in determining your credit score, so do your best to stay on top of all your bills. If making timely payments is a struggle for you, you may find a spending app can help with budgeting, keeping track of billing due dates, and prioritizing payments.

Watch Your Credit Utilization

Lowering your credit card utilization ratio — the percentage of available credit that you’re using on your credit cards and other lines of credit — can help you get and keep your credit scores where you want them. If you’re relying heavily on credit to get by, and you’re close to maxing out your credit cards, you may need to reevaluate your spending and change up your budget. A money tracker app could help you stick to healthy financial habits.

Monitoring Your Credit Scores

Even if you’re on your best behavior, if an unpaid medical bill ends up on your credit report, it may take months before you see some improvement to your damaged credit scores. Credit score monitoring can help you better understand how certain actions can affect your creditworthiness.

The Takeaway

Watching your medical expenses pile up can be stressful — especially if you’re worried that your unpaid medical bills can go on your credit reports and lower your credit scores. Fortunately, the credit bureaus and credit score models have begun treating medical debt with a little more patience and consideration than other types of debt.
But an unpaid medical account still can be a problem if you let it go for too long. So it’s important to stay on top of your medical bills, along with all your other financial obligations.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Can unpaid medical bills affect your credit?

A medical bill will likely only affect your credit if it’s been unpaid for so long that it ends up going to collections. Even then, consumers have a full year to clear up a medical collections account before it goes on their credit reports. But if the bill goes unpaid after that grace period is up, it could affect your credit scores.

How do I remove a medical collection from my credit report?

To have a medical collection removed from your credit report, you can either pay the amount you owe or — if you think it’s in error — you can try disputing the bill with the credit bureau and the debt collector that reported it.

Is it a HIPAA violation to send medical bills to collections?

Not necessarily. The Health Insurance Portability and Accountability Act (HIPAA) has strict standards for how health-care providers and their business associates, including third-party debt collectors, handle sensitive personal health information. Debt collectors can receive and disclose information but only to the extent that it is absolutely necessary to perform their job.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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You’ve been offered a job and everything is falling nicely into place — until your potential employer tells you they need to do a background screening, which will include running a credit check. Your credit score isn’t where you want it to be, and suddenly you’re very concerned. Will they rescind the offer based on your finances?

For positions outside the banking and finance world, your credit report will likely have zero effect on whether you get the position. And background checks for employment don’t affect your credit score.

Read on to learn the common types of background checks employers run and why they may want to look at your creditworthiness.

What Is a Background Check?

Not all job applicants are completely honest during the interview process. For that reason, many companies run some type of background check on prospective employees. Research from SHRM, the Society for Human Resource Management, found that 92% of companies in the U.S. conduct some type of background screening as part of the hiring process.

Employers order background checks not only to verify your identity, but also to confirm you’re telling the truth about certain things, including your past employment, academic credentials, and whether you have a criminal record. (Similarly, banks run credit checks for new checking accounts mainly to verify your identity and rule out identity theft and fraud. This shouldn’t usually affect your credit score.)

Pre-employment screening is typically conducted by a professional background check company hired by the employer. These third-party firms have access to resources and tools the average employer doesn’t, so they can deliver a more comprehensive report in a shorter amount of time.

Recommended: Does Opening a Checking Account Affect Your Credit Score?

What Are Employers Looking Out For?

Hiring managers are looking to avoid bringing someone onboard who is unqualified or poses any kind of risk to their business. Without any official vetting, the wrong candidate could result in financial damage to the company or make the workplace less safe for other employees.

By doing a background check, companies can reduce property damage, employee theft, and liability and legal costs incurred by hiring unqualified, uncredentialed people. Companies also hope to avoid employees who have exhibited threatening behavior toward coworkers in the past.

When companies order a credit check for employment, it’s to get an idea of whether the candidate might show signs of financial problems.

Having excessive debt and using a lot of your available credit could signal financial hardship and distress. An employer may see candidates with high outstanding debt or maxed out credit cards as having an increased likelihood of committing theft or fraud.

How a Background Check Affects Your Credit Score

The good news is an employer background credit check won’t affect your credit or FICO score at all. Why? It’s considered a soft inquiry, which pulls most of your financial information for data purposes as opposed to a hard inquiry, which can take points off your score. That’s because hard checks generally take place when a financial institution looks at your score to determine whether or not to issue you a loan or a credit card.

As mentioned earlier, an employer-requested credit report will be modified, listing your credit utilization rate, any past or current bankruptcy, available lines of credit, auto or student loans, and credit card payment history.

The credit report the employer sees won’t show other soft inquiries, so they can’t see if other employers have checked on you.

You, however, can see the soft inquiries if you request your own credit report. You could even sign up for a free credit-monitoring service to keep tabs on your credit on an ongoing basis. A money-tracker app can give you ongoing insights into your financial health.

7 Types of Background Checks

There are many different types of background screenings employers use to vet job candidates. The employer may use one or a combination of checks depending on their needs and concerns. Here are seven kinds of background checks a company may use to screen a new hire:

Identity Verification

This type of check is usually one of the first stages of a background check because an employer wants to first know that the person is who they claim to be. An ID verification confirms the candidate’s name, age, address, and Social Security number, to rule out any aliases or stolen identity.

Criminal Screening

A criminal record check enables the employer to make an informed decision about whether or not the employee will pose a threat to their company, clients, and employees. It’s especially important if the person will have access to financial information, security responsibilities, or work alongside vulnerable populations such as the elderly and children.

Criminal background checks typically include county, state, or federal records of any arrests, convictions for felonies and misdemeanors, outstanding arrest warrants, sex offenses, incarceration records, and any acquittals, pending, or dismissed charges.

Recommended: What is The Difference Between Transunion and Equifax

Credit Check

It may not be relevant to run a credit check for every potential new hire. An employer may feel it’s necessary for positions involving a security clearance, proximity to money, sensitive customer data, or confidential company information. And they’re not really interested in knowing whether you have a fair credit score.

A credit check may raise certain red flags that employers want to avoid, especially if it’s a job in the banking or finance sector. Many late payments can indicate you have trouble managing your money, aren’t responsible and organized, or can’t live up to agreements. As mentioned previously, these credit checks will not affect your credit score, nor will the employer be able to see your score.

You may want to see if your state or city allows employer credit checks. Currently, 11 states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington), and the District of Columbia have passed laws restricting these types of credit checks. New York City, Chicago, and Philadelphia have similar laws.

By the way, credit-monitoring services can alert you when someone has run a hard inquiry on your credit.

Motor Vehicle Records

When an employee may be expected to drive company vehicles or transport clients and customers, the employer will want to review the candidate’s driving record to ensure they’re hiring safe and responsible people.

A driving record check will show the person’s driving history, including any past license suspensions or revocations, vehicular crimes, accident record, DUI convictions and any car insurance lapses. The motor vehicle report will also reveal the number of points someone has on their license.

Recommended: What Credit Score is Needed to Buy a Car?

Professional License and Education

Some people may exaggerate or even give false professional credentials, claim they’re licensed by an official agency, attended a certain school, or have a specific academic degree, certain training, or certifications, thinking no one will really bother to check. But not so fast. Employers can and, in many cases, do fact check these claims.

Not verifying stated qualifications could lead to hiring a candidate who isn’t professionally qualified for the job. And hiring someone without the skills and education needed can make the company vulnerable to lawsuits and other problems. Education verification checks universities, colleges, vocational schools, and high schools to confirm enrollment, dates of attendance, type of degree obtained, and graduation date, among other details.

With professional licenses, background screening companies generally contact organizations to check if the person is licensed and is a bonafide member. They will make sure the membership is in good standing and hasn’t lapsed or expired.

Fingerprint Check

Along with the criminal check, fingerprint checks are used to reveal any criminal arrests, charges, or details about prior case results. Unlike other screenings, fingerprint checks require the potential employee to actively participate in the process by having their fingerprints scanned.

Fingerprint checks are often required in regulated industries such as financial services; government or criminal justice agencies; jobs requiring security clearance; and healthcare, where a candidate may be responsible for someone who is vulnerable such as a child or the elderly.

E-Verify

E-Verify is a government-run, web-based system through which employers can confirm an individual’s employment eligibility. Verification is based on data taken from an employee’s Form I-9, Employment Eligibility Verification and compared to records available to the Social Security Administration and U.S. Department of Homeland Security.

Recommended: Does Net Worth Include Home Equity?

How to Prepare for a Background Check by a Potential Employer

First, be honest on your job application and resume, and during the interview process. Bring up anything you think might concern your employer before they do a background check. You can also do a background check on yourself to see if there are any discrepancies or mistakes in your records you can clear up. You can order one from a provider such as Betterfuture.com.

In terms of your credit report, if you’re concerned an employer may have some issues, it’s a good idea to review yours in case there’s something you need to correct or resolve. The three main credit-reporting bureaus are Experian, TransUnion and Equifax. You can access your credit report for free by going to AnnualCreditReport.com, a federally mandated site. (Banks sometimes rely on a tri-merge credit report to see a round up of all three but consumers usually do not have access to this type of report.)

What Are Your Legal Rights as a Job Applicant?

According to the Federal Trade Commission (FTC), employers must obtain your written permission before they can run a background check. You have the right to say no, but bear in mind, this could result in your not getting hired.

When employers use a third party to conduct a background check including credit, criminal record, and past employment, the background check is covered by the Fair Credit Reporting Act (FCRA).

Under this law, employees have the right to:

•   Be informed of the background check

•   Provide consent for the background check

•   Review information pertaining to their personal and financial information

•   Correct any inaccuracies the report may contain

•   Appeal decisions if the applicant feels the decision was made unfairly

Laws in your city or state may impact whether, or when, employers can ask about and run a background check for your criminal or credit history. Before you fill out an application, check the laws in your state.

Can You Get a Copy of the Background Check?

Yes, the Fair Credit Reporting Act states you have the right to a copy of the background check from the company that prepared it. The name of the agency was likely on the consent form you signed, but if you can’t remember it, ask the employer to supply it. The screening agency should be able to provide you with a complimentary copy in a timely manner.

The Takeaway

Background checks have become a pretty routine part of the hiring process. These screenings can include a simple ID verification, driving or criminal record check, and pulling your credit report. Although it can be worrisome to know your employer’s checking on your credit, they’ll see an overview of your financial picture but not your actual credit score. Since it’s a “soft pull,” your credit score number will not change.

By knowing where you might be most vulnerable, you can prepare yourself by maintaining good records, being honest about your work and education history, and conducting your own background check to clear up any inaccuracies or potential problems.

Getting your finances on track starts with your credit score. Free credit monitoring is available with SoFi’s money tracker app. All you have to do is sign up (it takes just minutes) and start getting insights into your financial health.

SoFi gives you the tools to monitor and impact your credit score.

FAQ

Can a job offer be rescinded due to bad credit?

Yes, an employer can withdraw the job offer for almost any reason, including your credit report. They can’t, however, rescind the offer due to discrimination based on gender, race, or disability. If you think this could be a reason, consider talking to an attorney. Otherwise, you can express your disappointment to the hiring manager and request more details on why they made their decision. This provides an opportunity to get a clear explanation.

What does an employer check show?

Employment background checks are typically performed to see an employee’s job history, if they have a criminal record, and to verify their identity. A screening may also include validating education and/or professional qualifications, driving records, and/or credit history.

Do background checks show up on a credit report?

When a company requests a credit check as part of employment screening, it’s considered a soft inquiry. Since soft inquiries aren’t linked to an application for new credit, they’re only visible to you when you view your credit reports.

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Photo credit: iStock/MissTuni

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This article is not intended to be legal advice. Please consult an attorney for advice.

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