The length of time each item appears on your credit report depends on the type of information involved.
While successfully paid credit accounts can stay on your report for up to twenty years, some types of negative credit information can remain visible for up to six years.
One such negative factor is debts in collections, which can severely damage your credit. The big question is, how long do collections stay on your credit report? In this guide, we answer this question and look at ways you can rebuild credit.
What happens if your debt is sent to collections?
If you don’t pay a debt on time, your creditor hires a collection agency. Their job to collect what is owed on behalf of the creditor, and they are paid a commission for doing so.
When a debt is sent to collections, you will typically receive calls, text messages, letters and emails. Some will even resort to legal action.
When a debt is sent to a collection agency, it’s recorded on your credit report as R9, the worst possible credit rating for an account. Your credit score will take a nose dive and make it difficult to get future credit.
How long do collections stay on your credit report in Canada?
According to the Financial Consumer Agency of Canada, accounts in collections appear on your credit report for 6 years.
Depending on whether the credit bureau is Equifax or Transunion, the clock starts ticking when you made the last payment or when you defaulted on the account with the original creditor.
Accounts in collections appear on an Equifax credit report for 6 years from the date of your last payment.
TransUnion Canada records accounts in collections on your credit report for 6 years from the date you defaulted on the account with the original creditor.
Are unpaid collections removed from a credit report in Canada?
Debts in collections are automatically removed from your credit report after six years, regardless of whether you pay the balance or not.
This damage cannot be reversed, and you must wait for collections to fall off your credit report. Even if you pay the debt, it remains on your credit report. However, it stops legal action, demonstrates accountability to future lenders, and may help your credit score if you pay before the six-year period is up.
Can you remove collections from a credit report in Canada?
While collections are automatically removed from your credit report after six years, you can request their removal if there has been a mistake or if enough time has passed.
You must verify who the legal owner of the debt is, the initial creditor or collection agency, by asking them to provide a letter proving that they own the debt. The letter should include the original creditor’s name, the amount owed, and whether it’s still collectible under the statute of limitations.
If the unpaid account is eligible to be removed from your credit report due to the length of time it has appeared, you can send a letter by registered mail to the credit bureaus and the collection agency involved.
Request the immediate removal of this item from your credit report and include information such as:
- Your name, phone number and address.
- The account number.
- Date of your last payment, along with any evidence.
If it hasn’t been six years since you last made a payment or the date you defaulted on the account, the collection record is not eligible for removal. However, you can propose a debt settlement agreement to have the debt marked as paid on your credit report, which may boost your credit score.
How long do collections stay on your credit report after they are paid?
Collections can stay on a credit report for six years — even if they are paid. However, paying an account in collections will appear as paid on your credit report, which could boost your credit score and make it easier to get credit in the future.
Changes to credit report information can take up to 30 days, so check back regularly to make sure it has been updated.
Do collections disappear after 7 years?
Although debts may disappear from your credit report after 7 years, it does not mean the debt has disappeared. Creditors may still attempt to collect the outstanding debt, even if it is no longer reflected on your credit report.
Can you still build credit with collections on your credit report?
While you wait for collections to fall off your credit report, focus on adding positive information to your credit file to repair your credit. Here are some good ways to rebuild your credit:
Make payments on time
Paying bills on time is one of the best things you can do to build a good credit score, as it makes up 35% of your credit score. Late or missed payments are the most damaging to your credit file.
Lower your credit utilization
A large credit card balance can hurt your credit. Credit utilization is the amount of credit you’re using compared to the amount you have available. In other words, it’s how much of your credit limit you’re spending.
For example, if you have a credit card with a $2,000 limit, and you’ve spent $1,000 on it, your credit utilization would be 50%.
As the second most important factor affecting your credit scores, you must keep your credit utilization low, or it will hurt your credit score.
Large balances on credit accounts make lenders worry you might not be able to pay it back, so try to keep your credit utilization below 30%.
Add lines of credit
Having a variety of credit products can boost your credit score. For example, managing a credit card, a secured credit card and a car loan are better than just having a credit card. If you are able to add different types of credit to your credit history, then do so.
Use a secured credit card
A secured credit card is easier to get than a regular credit card because you make a security deposit that matches your credit limit. Any activity on the card is reported to the credit reporting agencies to help build your credit.
Eliminate debt altogether
A lower debt-to-credit ratio results in a higher credit score, so less debt means you are more likely to qualify for credit.
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