There are a number of things that can affect your credit score. Approximately 30 percent of your credit score is determined by your payment history or how you pay your debts. Once your account goes to a collection agency the process may not work exactly the same. It is difficult to determine exactly how every category will impact your credit score. Everyone's credit history will be affected differently by accounts handled by collection agencies.
Trade Line Zero
When accounts are charged off as bad debts they will be forwarded to a collection agency which will adversely affect your credit report. This information also will be reported to a credit reporting agency. Your entire trade line which includes all of the information about a creditor, including the balance, credit limit, credit rating and date last paid and type of account. When accounts are forwarded to a collection agency the balance on the trade line will show zero which means when you make payments your score will not improve.
Balance
If the trade line shows a balance your score may improve slightly when payments are made. The exact amount of improvement will vary from debtor to debtor. Any other credit you have will have an impact on how much your score improves. Also, if you have been on file with the credit reporting agency for quite a while, the negative impact of the collection agency account will have even less of an effect.
Age of Account
As time passes, your credit score will be impacted even less by the collection agency account. An account which has been on your credit file for two years will have more effect on your score than an account that has been on your file for six years.
Recent Activity
In the past, if you had an old account on your credit report that had not had a payment in a while--say five years--a payment would actually lower your credit score. If you had an account with a balance without a payment in five years, this account would have had a minimal effect on your score but if you made a recent payment your score would actually be lowered. The originators of the FICO score have made the necessary adjustments so that this does not happen in the future.
Time Frame
If you have a collection agency account with a record of a bad debt, it will be removed from your credit file after a period of seven years. Once the account is taken off your file, your credit score will have a minimal increase. Seven years is the time frame for most derogatory credit to drop from your credit file automatically. If you have items that have not dropped off after the seven-year time frame, you can contact the credit reporting agency to dispute the information.
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