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How Collections Affect Your Credit
Last Updated – June 25, 2010

We all know the current economy is not that great. Money is tight and you are finding it hard to keep within your budgeted monthly expenses. This may mean trimming back on some expenses to meet some other financial obligations. Before you skip those credit card payments, know that skipping these payments may lead to these accounts going into collections.

As you probably know, late payments will negatively affect your credit score. A 30-day late payment can lower your score anywhere from 60 to 110 points (depending on your current score). Just image what an account in collections will do!

How Does an Account End Up in Collections?

Months go by and you are still not able to make a payment on one or more of your accounts. During this time, it is a guarantee you are getting phone calls at all hours of the day from these creditors wondering when and if you are ever going to make your account current. You keep putting them off or you just stop answering the phone (you now have caller ID) until about 6 months have gone by. Generally, if you have not paid on an account for 6 months, the lender will then turn this account over to a collection agency.

With no success on collecting this debt from you, the lender now reports the account as a “charge-off” on your credit report and they turn this account over to a collection agency. This does not mean you no longer have to pay on it – it just means they have taken it off their books. You are still legally responsible for this debt and the creditor can come after you to collect it in the future.

How Will This Collection Affect Your Score?

Having a 30-day late payment is bad enough on your credit score – deliquencies, charge-offs, and collections are far worse on your overall credit score. Not only will the original creditor list this account as a “charge-off” but the collection agency will also list the same account as “in collections”. This is a double wammy in the score killing arena.

FICO does not disclose exactly how much these negative entries affect your score, but suffice it to say it ranks right under foreclosure and bankruptcy in the top ten worst items that could be on your report.

So, How Can I Get a Collection Off My Credit Report?

Found in this website is a plethora of information on how to dispute negative entries on your credit report and increase your credit score. Check out these pages for more information:

  • Credit Repair
  • Professional Credit Counseling
  • Remove Collections
  • Debt Validation
  • Visit Our Online Bookstore for Downloadable Materials

So, before you put those credit card payments on the back burner, know what those late payments will do to your credit. Chances are you can work with the lender before your account goes into collections and really does some damage to your credit score.

 

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