Can You Get a Loan with Collections on Your Credit Report?

Navigating the world of credit and loans can feel like walking through a financial minefield—especially if you have collections on your credit report. Whether it’s an unpaid medical bill, a forgotten credit card balance, or a disputed charge, collections can haunt your credit history for years. But does that mean you’re automatically disqualified from getting a loan? Not necessarily.

Understanding Collections and Their Impact

What Are Collections?

When you fail to pay a debt, the original creditor may sell it to a collection agency or hire one to recover the money. Once this happens, the account is marked as "in collections" on your credit report. This negative mark can significantly lower your credit score, making lenders wary of approving you for new credit.

How Collections Affect Your Credit Score

Collections can drop your score by 100 points or more, depending on your credit history. They stay on your report for seven years from the date of the first delinquency, even if you eventually pay them off. The newer the collection, the worse the damage.

Can You Still Get a Loan with Collections?

The short answer: Yes, but it’s harder. Lenders view borrowers with collections as high-risk, but some are willing to work with you under certain conditions.

Types of Loans You Might Qualify For

1. Secured Loans

If you have collateral (like a car or savings account), secured loans are easier to obtain. The lender can seize the asset if you default, reducing their risk.

2. Subprime Loans

Some lenders specialize in high-risk borrowers, but beware—these often come with sky-high interest rates and predatory terms.

3. Credit Union Loans

Credit unions are nonprofit and may offer more flexible terms than big banks, especially if you’re a long-standing member.

4. Co-Signed Loans

A co-signer with good credit can boost your approval chances, but they’ll be on the hook if you can’t pay.

Factors That Improve Your Chances

• Time Since the Collection: Older collections hurt less than recent ones.
• Payment History: If you’ve been paying other bills on time, lenders may overlook one blemish.
• Debt-to-Income Ratio (DTI): A low DTI shows you can manage new debt responsibly.
• Settled Collections: Paying or settling a collection (even for less than owed) can sometimes help, though it won’t remove the mark.

Steps to Improve Your Approval Odds

1. Check Your Credit Report for Errors

Mistakes happen. Dispute any inaccuracies with the credit bureaus (Experian, Equifax, TransUnion) to potentially boost your score.

2. Negotiate a Pay-for-Delete

Some collection agencies may agree to remove the negative mark if you pay—get this agreement in writing before sending money.

3. Build Positive Credit

• Use a secured credit card responsibly.
• Become an authorized user on someone else’s account.
• Pay all bills on time, every time.

4. Save for a Larger Down Payment

A bigger down payment reduces the lender’s risk, making approval more likely.

The Bigger Picture: Credit and Financial Inequality

Having collections isn’t just a personal issue—it’s often tied to systemic problems.

Medical Debt: A Silent Crisis

In the U.S., medical bills are the leading cause of collections. Many people face collections through no fault of their own, highlighting gaps in healthcare affordability.

Racial and Economic Disparities

Studies show that Black and Hispanic borrowers are more likely to have collections on their reports due to systemic inequities in wages, housing, and access to credit.

The Student Loan Factor

With $1.7 trillion in student debt, many young adults struggle with payments, leading to delinquencies and collections that haunt them for years.

Final Thoughts Before Applying

If you need a loan but have collections, don’t give up. Research lenders, improve your credit where possible, and consider alternative financing options. And remember—financial setbacks don’t define your future. With patience and strategy, you can rebuild and regain control of your credit.