Your Credit Score and Collections. We Provide Answers to the Most Common Questions

Receiving a letter from a collection agency is always annoying, and it usually raises some issues. But first, let me state unequivocally that this is not the end of the world. Sure, it's unpleasant, but we can take steps today to avoid it in the future. This blog post will address some of your most important collections and credit score concerns.

The following are the main questions we'll address:

1. What is the definition of a collection account?

2. When a bill or account is sent to collections, what happens to my credit?

3. What is the difference between a charge-off and a collection account?

4. What is the impact of collections on my credit score?

5. How long does it take for collections to appear on my credit report?

6. How can I get a collection account removed from my credit report?

7. Will a collection be deleted from my credit report if I pay it?

8. Is it true that paying off a collection will improve my credit score?

WHAT IS A COLLECTION ACCOUNT?

When a debt is transferred on to a "collection agency" after the original creditor has exhausted all efforts to collect the obligation, it is referred to as a "collection account." The collection account is treated as a distinct entity with its own credit reporting status. This is a collection account, but it's also a debt that hasn't been paid.

WHEN A BILL OR ACCOUNT GOES TO COLLECTIONS, WHAT HAPPENS TO MY CREDIT?

Your credit score takes a hit when a bill or account is sent to collections, and it's usually a big hit. Once reported on your credit report, a collection can drop your FICO score by 50-100 points (on a scale of 300-850). An example of how a collection may appear on your credit report is as follows:


WHAT IS THE DIFFERENCE BETWEEN A COLLECTION ACCOUNT AND A CHARGE-OFF ON MY CREDIT REPORT?

A charge-off is not the same as a collection account. A charge-off is the final step taken by the original creditor before the debt is written off. In your credit reports, a charge-off may be referred to as "charged-off."

You did not pay the original creditor in this case. When a debt is written off or "charged-off" on your credit record, the creditor assumes it is "uncollectible."

The next step is to hire an outside collection agency to try to recover the debt. They will most likely add a new "collection account" to your credit record.

WHAT EFFECT DO COLLECTIONS HAVE ON MY CREDIT SCORE?

A credit report collection might reduce your score by up to 100 points. The amount of a decline in your credit score is determined by the type of account, the age of the debt, and your overall credit. If you have a majority of positive credit, the collection account will be less damaging to your credit once reported; but, if you solely have positive credit, the collection account will be more damaging to your credit once reported. A collection that is less than six months old will often have the biggest detrimental impact on your FICO score.

COLLECTIONS REMAIN ON MY CREDIT REPORT FOR HOW LONG?

From the date of the first default, a collection account will appear on your credit record for seven years (when you first fell behind on a payment). It's a frequent misconception that the seven years begin again each time it's sent to collections; the good news is that this is just that, a myth.

CAN A COLLECTION BE REMOVED FROM MY CREDIT REPORT?

Yes, in some situations. “You have the right to dispute faulty information in your file and request removal of wrong information,” according to the Fair Credit Reporting Act. Isn't it straightforward enough? Most consumers, in our experience, have the exact opposite experience.

WHERE CAN I GET A COLLECTION REMOVED FROM MY CREDIT REPORT?

Send a letter dispute to each credit bureau, including the following information:

  • What exactly is it (for instance, a "medical bill" or a "credit card balance")?
  • Why you think it's wrong (for example, "incorrect amount reported" or "arbitrary reporting cut-off date")
  • Include copies of verification that you paid the bill before it went to collections or that the problem was properly settled.
  • Send your complaint via certified mail with a return receipt required.
  • Within 30 days, the credit bureaus must answer to you in writing.
  • If they don't react after four weeks, send a follow-up note to indicate that they got your original letter and to request removal.

Let's say the company that reported the collection to the credit bureaus is unable to verify the authenticity of the information. They must erase it from your credit record if this is the case.

A company is not required by the Fair Credit Reporting Act to delete an accurate collection account from your records. Whether or not to remove it is up to each collecting business.

Get a free credit analysis from us to discover if you qualify for our attorney-backed program if you need extra firepower.

WILL A COLLECTION BE REMOVED FROM MY CREDIT REPORT IF I PAY IT OFF?

No, only inaccurate information can be removed from your credit report by the credit bureaus. Your payment will be applied to the collection account and may result in the removal of adverse reporting in the future. Even so, the initial item will remain on your credit record. You may be able to negotiate a pay-for-delete deal with the collecting agency in some situations. Again, whether or not they are willing to remove it is entirely up to them. If this is the route you're going, make sure you get it in writing before paying.

CAN I IMPROVE MY CREDIT SCORE BY PAYING OFF A COLLECTION ACCOUNT?

It is debatable. If you pay a collection and the collection is erased from your credit record, your credit score will improve. It usually only occurs when a pay-for-deletion agreement is in place. If you settle the collections or charge-offs that remain on your credit report, your FICO score will usually not change.

WHAT WE'RE GETTING AT IS THIS...

Collections can have a big impact on your credit score. Assume that you've ever had a bill or account sent to collections. In that instance, it will be on your credit report for up to seven years and will have a negative impact on your credit. When asking for loans, your bad credit score will affect your interest rate (assuming you qualify at all). Paying out the sum will not eliminate the collection from your credit report or boost your credit score, regardless of whether it was due to late payments, fraud, or defaulted contract conditions. We offer Attorney-Backed Credit Repair, which was created with this ultimate purpose in mind — assisting clients in achieving financial independence, becoming homeowners, business owners, and more!

Related Articles:

https://thephenixgroup.com/credit-repair

https://thephenixgroup.com/who-are-the-three-credit-bureaus

https://thephenixgroup.com/how-much-does-a-charge-off-affect-my-credit-score



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