What is a Collection Filing?
When a credit card debt or any other loan becomes seriously past due, the creditor may decide to turn your account over to an internal collection department or sell off your debt to a collection agency. The collection agency can then report your inability to pay off bills to the relevant credit bureau, which in turn can significantly affect your overall credit score.
How Long Do Collections Stay in Your Credit Score?
If the collection filings appear in your credit score, the last thing you would want to do is ignore it. Unfortunately, the offense remains on your credit score for up to seven years. Even if you have successfully paid off the debt, the collection stays for the same period marked as ‘paid collection.’
How Do Collections Affect Your Credit Score?
The credit report signifies to the potential lenders your ability to handle credit efficiently. If you pay your bills in a timely manner and keep the balances on your accounts low, your responsible attitude towards your financial status will reflect on your credit report. On the other hand, if you recurrently pay late or skip payments altogether, the information will show up on your credit score report.
As we mentioned above, the collection filing happens if you are very late in paying up your debts. Usually, the debt lands up for collection filings after four to six months of non-payment. Most creditors stop contacting the non-payees as well and for them – a sudden drop in credit score and a call/visit from a third-party collection agency is a jolt of surprise.
Initially, the credit score drops around 50 to 100 pounds, depending on high the credit was. Those who already have bad credit score will suffer less as well.
Another thing to keep in mind is that with time, the severity of the collection’s impact on your credit also lessens.
Are All Debts Challenged In A Similar Manner?
Typically, all types of unpaid debts including credit card bills, student loans, auto loans, and even utility bills can be sent off for collection.
However, since the past few years, FICO has modified their policy towards medical bills that carry less impact on the credit score.
How Do You Find Out Your Non-Payment Has Gone For Collection Filing?
Ideally, the collection agency contacts and notifies the non-payers regarding the collection filings. However, in some cases such as relocation, you may remain unaware, as the collection agency is unable to locate you.
The best way to ensure you are on top of your credit score is to regularly assess your credit score and credit report. And of course, clear your dues on time to mimic responsible attitude.
Can I Still Get A Loan If I Am On Collection Filing?
Yes, in moderate cases, you will be able to avail a loan despite boasting negative markings on the credit score. However, your interest rate will be higher than the average as a result of your bad credit score.
How To Clean Your Credit Report From The Collection Filing?
Removing the collection accounts from your credit report can dramatically increase your credit score. If you do find the collection account to be unjustified, contact a local credit repair company or seek assistance from an online service who will work with you to remove the allegations on your credit report and improve the score as well.