Do Debt Collectors Affect Credit Score?

How Do Debt Collectors Impact Credit Scores?

You may also have collection accounts on your report and you might be asking yourself if the actions of the debt collectors will have any way of affecting your credit score. Sadly, the answer is yes – dealing with collections agencies is likely to hurt your credit. Now let me tell you what you should know.

An Overview of How Collectors Affect Credit Rating

Should an account be put under collection, it suggests that you have failed to pay for a loan as specified by the original lender. To help you pay the amount you owe, collection companies purchase past-due bills.

Debt collectors have a few main methods that might compromise your credit score.

• Reporting Debts: This agency of collections will forward the unpaid debt to the three credit reference agencies, namely Equifax, Experian, and TransUnion. This puts a mark that is negative and a history of late payment that pulls down the score of the credit.
• Lower Credit Limits: When lenders see that you have debts in collections, they will consider you a higher-risk customer and reduce or deny your existing or new credit limits. This increases your credit usage which can easily decrease scores.
• Settlements: If you decide to pay and negotiate the debt in collections, it will still reflect on your credit report for the next seven years from the time the account was delinquent. It is important to note that when you settle or pay for a collection debt, it will not be deleted from your records.
• Repeated Collections: If such accounts get into collections over time, this will alert the lenders that you are an untrustworthy borrower who cannot meet the payment obligations. Many collections could lead to the extremely challenging process of obtaining credit and loans.

Debt Collection: How to Protect Yourself

1. Discuss and negotiate on how the payment will be made or who will contribute to the payment. Staying passive will simply make interest and penalties stack up and the situation will not improve.
2. Never let the accounts get into the collection status – it is better to contact creditors when payments become a problem. Many times the problem can be solved without having to spend a hefty amount on some debt collector.
3. Choose an installment type and repay the agreed amount in full and in one lump sum rather than making partial payments over time if at all possible. Consider debt consolidation.
4. Make sure errors are resolved by challenging misinformation in the credit reports. If the collection is reported falsely, then the consumer should provide proof to the credit bureaus.
5. Compose goodwill letters to creditors and collection agencies requesting them to be understanding and consider forgiving certain debts to prevent credit harm due to sympathetic circumstances. Sometimes it does not, but at times it makes them change their mind.

The Bottom Line

Sadly, it is impossible to escape the credit damage debt collectors cause. The agencies have a right to provide accurate information to chronically late and non-paid obligations to the bureaus. This is what serves their capability to compel consumers to honor what they legally owe to them in terms of payback. Collection account damage can be minimized if the borrower is aggressive with creditors before accounts go to collections. In case you are taken to collections, exercise professionalism and work with the collectors to clear your debts either by agreeing to pay in installments or by negotiating for settlement to avoid accumulating more charges. Do not get multiple collection accounts over a period by handling a financial problem exhaustively from the beginning. While, the collections account will have a lesser and lesser effect on credit scores over time, late payment records by the debt collectors will continue to have a detrimental effect on the credit score for seven years.

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