How Long Does a Collection Stay on a Credit Report in Canada?

Dealing with debt is tough, and it can feel even more overwhelming when a collection shows up on your credit report. But how long does a collection stay on a credit report in Canada, and what does that mean for your financial future?

Well, the good news is it will not last forever. In most cases, a collection stays on your credit report for about six to seven years, depending on where you live. Plus, if you are in need of debt relief, knowing what to expect and how to handle it can make all the difference.

What is a Credit Report?

A credit report is like a snapshot of your financial history, showing things like how you have handled loans, credit cards, and bills over time. It is created when you borrow money or apply for credit for the first time. It includes your payment history, how much debt you have, and whether any of your accounts have gone to collections. In short, it’s a summary of your credit history.

When looking at a credit report, it usually also generates a credit score for you. This score shows lenders, landlords, and even some employers how responsible you are with money. Lenders use it to figure out if they should give you a loan or credit card, landlords want to make sure you will pay rent on time, and employers might look at it, especially for finance jobs, to see if you are financially trustworthy.

Understanding Your Credit Score

Your credit score is a three-digital number that is based off the information in your credit report. It is calculated using a formula from your credit report and your score changes over time as your credit is updated.

It is important to note that it is impossible to know how your credit score is calculated or how your actions can change it as credit bureaus and lenders do not share the actual formulas, they use to calculate your score. This is why they should be used mostly as a reference.

Factors that may affect your credit score, as outlined by the Government of Canada, includes:

• How long you have had credit
• How long each credit has been on your report
• If you carry a balance on your credit cards
• If you regularly miss payments
• The amount of your outstanding debts
• Being close to, at or above your credit limit
• The number of recent credit applications
• The type of credit you are using
• If your debts have been sent to a collection agency
• Any record of insolvency or bankruptcy

The term credit score is used almost interchangeably with credit rating, which ranges from 1 to 9 and is specific to every item in your credit history. The Canadian credit bureau gives ratings to each item individually in accordance with the North American Standard Account ratings.

What Constitutes a Collection?

So, what exactly is a collection? Simply put, a collection happens when you do not pay a debt for a long time, and the creditor hands it over to a collection agency. This could be for things like credit card debt, medical bills, or even unpaid utility bills. Once your account is with a collection agency, it shows up on your credit report and can hurt your credit rating.

Filing a consumer proposal or bankruptcy will also show up on your credit report. Credit bureaus do not differentiate between consumer proposal and bankruptcies when initially filed. They will have the same credit rating on your report, but it’s when you successfully complete your consumer proposal when this changes.

How Long Does a Collection Stay on a Credit Report?

In Canada, a collection generally stays on your credit report for six to seven years from the date of your last payment. The exact time can vary depending on the province, but this is the standard range. While that seems like a long time, the impact it has on your credit goes down as the years go by.

What Can Make a Collection Stick Around on Your Credit?

The type of debt you have can also affect how long it sticks around. For example, certain types of government debts, like unpaid taxes, may follow different rules. And if you try to pay off the collection, it will still show up on your report — but it will be marked as “paid,” which looks much better to lenders than an unpaid collection.

Impact of Collections on Your Credit Score

Short-Term Effects on Your Credit Score

When a collection first hits your credit report, it is not pretty. You can expect your score to drop — sometimes by 50 to 100 points, depending on your credit history. Collections are a red flag to lenders because they show that you had trouble paying off your debts. As a result, getting approved for loans, credit cards, or even rental applications becomes harder.

However, if you are in debt, your credit score might not be a top priority in the short-term. Instead, you should focus on your financial health and how you can recover in the long term. Whether that means finding ways to pay off your debt on your own, or looking into debt-relief solutions with a debt expert.

Long-Term Effects on Your Credit Score and How to Recover

The good news? As most say, time heals things, including your credit score. As the years go by, the negative impact of the collection lessens. If you focus on paying down other debts (like those on your credit cards) and making your current payments on time, your score will slowly start to improve. You could see your credit recover even before the collection officially drops off your report.

There are other things that can help improve your credit score as well. This includes ensuring your bills are paid on time, not missing payments, you reduce the number of hard credit checks, and so on. You can refer to the list of factors that may affect your credit score to understand what is being considered.

Also, let us not forget your financial goals at the end of it all! Understanding what your long-term goals are and trying to build a better relationship with money is important. We recommend working with financial professionals, such as a Licensed Insolvency Trustee, if you have debt and are looking for counselling to help rebuild yourself back up.

Tips for Managing and Removing Collections

Having a collection on your credit report can feel like a weight on your shoulders, but there are ways to manage it and maybe even remove it in the future.

Keep an Eye on Your Report

It is a smart move to review your credit report at least once a year. You can do this through one of Canada’s two major credit bureaus, Equifax or TransUnion, or by using third-party services like Credit Karma or Borrowell. Some banks also offer access via their website or mobile app. Make sure to check over the details carefully and keep an eye out for any collections entries.

On the other hand, avoid doing hard credit checks (like the ones that an employer and lender would do) too often. Those will ding your credit score, so we recommend soft credit checks like with Credit Karma or Borrowell. You can check your report as often as you like with these two, without any negative effects.

Negotiate with Creditors

One way to handle collections is to negotiate directly with your creditors. If you have managed to pay off your collections debt before the six years are up, you can totally try asking the collections agency to remove it from your credit report early. Just keep in mind, they do not have to say yes. Whether they agree often comes down to things like how much you owed and how your account looked before.

If you need help negotiating with creditors, you can lean on debt experts to help with that. You do not have to do it alone! Debt experts, like the team at Farber, are here to guide you every step of the way, helping you gain the confidence that comes from leaving your debt behind.

Dispute Inaccurate Collections

Mistakes happen. If you see a collection on your credit report that should not be there — or if the details are wrong — you can dispute it. The first step is to contact the credit bureaus and provide proof that the collection is incorrect. Getting an inaccurate collection removed can give your credit a quick boost.

How Farber Can Help

If you are feeling overwhelmed by collections or other credit issues, you do not have to go through it alone. Farber offers personalized debt consulting services that can help you navigate your options and come up with a plan. Whether you need advice on how to manage existing collections or want help negotiating with creditors, we are here to support you every step of the way. Book a free consultation with us today!

Getting back on track with your credit is possible — and we can help you get there.