How Debts in Collections Affect Your Credit And You Getting A Loan From A Bank

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How Debts in Collections Affect Your Credit And
You Getting A Loan From A Bank
Debt Collection
What is a collection? A collection is an account
that has been sold to a third-party debt
collector. If you become delinquent--that is,
miss several payments for anything from a medical
bill to a credit card bill--the company owed will
often write off this debt as a loss and sell that
it to a collection agency. The collection agent
will then attempt to collect the repayment from
you.
While different creditors and lenders have
different policies, many credit card accounts are
sent to a collection agency after 180 days of
non-payment. Both the original creditor and the
collector are able to update the account on your
credit report with a "collection" status and they
are not required to tell you that your account is
being sent to collections.
What does it mean for my credit? If you have an
account go into collections and reported on your
credit, your credit score may drop by a
substantial amount You can see how much this
would affect your score with Credit Simulator.
The degree to which a collection hurts your
credit score is directly correlated with how high
your credit score is when the collection agency
reports the debt. The higher your score, the more
points you can lose.
In addition, the amount of damage to your credit
score is also determined by the collection
amount, or how much you owe. Some scoring models
now have a way of differentiating between
consumers who have clear debt management problems
and those who only have minor accounts in
collections. For example, if the original debt
you owed was less than 100, the resulting
account in collections may show up on your credit
report but it may not hurt your credit score.
The resulting credit score drop from having an
account in collections will directly impact your
future financial plans, as it may cause you to be
denied for credit cards and loans, especially if
the collection is recent or remains unpaid (or
both).
Tips on what to do with an account in
collections Unless you negotiate with the
collections agency to remove the mark, accounts
with a "collection" status can stay on your
report for up to seven years, whether or not you
pay the debt back. While you are working out what
to do with your account in collections, make sure
to keep your other debts and accounts up-to-date.
As time passes, the collection account may have a
less significant impact on your credit. In
addition, if you pay all your other bills on
time, doing so could help your credit score
recuperate from a debt collection. You can also
attempt to lessen the effects on your score by
paying it off and negotiating with the collection
agency to mark it as "paid in full" or "settled."
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How to dispute an erroneous account in
collections If it is not your debt, you are not
required to pay it and creditors cannot list it
on your report. In addition, if the seven- year
period is up and the "collection" status still
remains on your report or if you are still being
contacted about a very old debt, it is possible
that the account has been sold and resold a
number of times and you should dispute the debt
from your credit report. There is no statute of
limitations on how long a collection effort can
last, but some states do have a statute of
limitations on how long a creditor or collector
has to take legal action with your debt.
Learn about how to dispute wrong information on
your credit report.
Debt collectors
Debt Collector
Debt Collection Agency