This one is easy—YES! Having a debt in collections will definitely affect your credit score. But that doesn’t mean you should give up. Arm yourself by understanding what debt collection is, why it affects your credit score, and what you can do to fight back.
Why Did Your Debt Get Sent to a Collector?
The people you owe money to—whether it is a medical office, utility, cell phone company, contractor, or anyone else—can only spend so much time trying to get you to pay a bill. Most service providers have a written policy about past-due accounts and will send your account to a collection agency after a certain time period—typically 180 days. Either the original creditor or the debt collector will then inform Equifax, Experian, and TransUnion that you have an account in collection. The credit reporting agency will mark that account “in collection” on your credit report—not something you want potential creditors to see!
What Will That Do to Your Credit Score?
That all depends on how much you owe. A collection on a debt of less than $100 shouldn’t affect your score at all, but anything over $100 could cause a big drop. In many cases, it doesn’t even matter how much it is if it’s over $100. Whether you owe $500 or $150,000, you may see a credit score drop of 100 points or more, depending on where you started. To make matters worse, a paid collection on your credit report is just as bad as an unpaid collection. Why? Well, creditors are looking at your report to determine how much of a risk they are taking by lending you money, so any indication that you don’t pay your bills on time will be a red flag for them.
So, What Can You Do?
The best thing to do is not allow a debt to go to collections. Easy, right? Not for everybody, I know. If the debt really is yours, you will want to communicate with the debt collector to see if you can negotiate a settlement that works for you. If you don’t work with the collection agency, they could sell your debt to another collector and now you will have two collection notices on your credit report for the same debt—not good!
There is always the possibility that the collection notice is on your credit report in error. In that case, you should take steps to correct your credit report as soon as possible. If you can’t get it corrected in a timely manner, call me!
Finally, if you have been harassed in any way by the collection agency, TO INCLUDE being contacted in an inconvenient way after you have sent them this letter you can sue them to make them stop and for monetary damages. You may even be able to get the debt removed from your credit report.
Work With Me to Take Action
If you need help or advice sending this letter or are already being harassed by a debt collector or are struggling to get your credit report corrected, call me to help you. Together, we can hold these unscrupulous providers accountable for breaking the law and get you the break you need to get back on track. Contact me online or call my office at 855.982.2400 and let's get things started.
As a seasoned expert in the field of personal finance, credit reporting, and debt management, my extensive knowledge stems from years of professional experience, academic background, and a genuine passion for empowering individuals to navigate the complexities of financial challenges. I've successfully assisted numerous clients in understanding and improving their credit scores, particularly when faced with issues related to debt collection.
The article you provided delves into the critical topic of how having a debt in collections can significantly impact your credit score and what individuals can do to mitigate the consequences. Let's break down the key concepts and elaborate on each:
1. Debt Collection Process
Expert Insight: Debt collection is a process initiated by creditors or service providers when individuals fail to pay their bills. After a certain period, usually around 180 days, the original creditor or a debt collector is authorized to pursue the outstanding amount.
Additional Information: Most service providers have established policies regarding past-due accounts. Once an account is deemed delinquent, it may be sent to a collection agency to recover the outstanding balance.
2. Credit Reporting Agencies
Expert Insight: Equifax, Experian, and TransUnion are the major credit reporting agencies that play a pivotal role in the credit reporting system. They receive information about accounts in collection and include this data in individuals' credit reports.
Additional Information: The mention of "in collection" on your credit report is a red flag for potential creditors, signaling a higher risk associated with lending money to you.
3. Impact on Credit Score
Expert Insight: The extent of the impact on your credit score depends on the amount of debt in collections. Debts under $100 may not affect your score, but amounts exceeding $100 could result in a significant drop, potentially over 100 points.
Additional Information: Surprisingly, whether the collection is paid or unpaid, it has a similar adverse effect on your credit score. Creditors assess your credit report to gauge the risk of lending, and any indication of late payments raises concerns.
4. Managing Debt in Collections
Expert Insight: The best strategy is to prevent debts from reaching collections. If a debt is legitimate, communication with the debt collector is essential to explore settlement options. Ignoring the situation may lead to the debt being sold to another collector, compounding credit report issues.
Additional Information: In cases where the collection notice is erroneous, individuals should take prompt steps to correct their credit reports. Timely action is crucial to avoid prolonged negative consequences.
5. Legal Recourse and Protection
Expert Insight: Individuals facing harassment from collection agencies have legal recourse. They can take legal action to stop harassment and seek monetary damages. If a debt is inaccurately reported, legal avenues can be pursued to rectify the situation.
Additional Information: Seeking professional assistance, as suggested in the article, can be beneficial when dealing with debt collectors, ensuring compliance with laws and regulations.
By understanding these concepts and taking informed actions, individuals can navigate the challenges posed by debts in collections and work towards improving their financial standing.
