Collection accounts can be devastating to your credit score. There are many questions and myths about collections accounts out there. In order to get the credit that you deserve these need to be addressed. When you have the true facts and honest answers then collection accounts can be managed or even eliminated.
What are collections accounts?
If you have ever reviewed your credit reports you may have noticed collections accounts. These are normally listed in the public section of the report. This means that the account has gone into collections due to nonpayment. When this happens it can negatively affect your credit score.
A lower credit score can mean being denied credit by some companies. When credit is offered you may find yourself paying a higher interest rate. Collections accounts are often bought and sold, especially older accounts.
A common practice is for a collection agency to purchase old debts for pennies on the dollar. The rate of fraud and deception in this industry is extremely high. You could find the same debt listed more than once if it has been purchased. This can make it difficult to determine the actual entity that you owe at times.
What causes an account to go into collections? How long does it stay on your credit?
An account typically goes into collections once 120 days has passed without payment on the account. Once this time has passed the creditor often writes the debt off. Junk debt buyers then purchase the debt. Some debts are past the statute of limitations for collections.
A collection account can stay on your credit reports and affect your credit score for up to 7.5 years. This timeline starts on the date that the debt became past due. It does not start on the date that the account went into collections.
Who has collection accounts?
Many people owe collection accounts. Sometimes you may not even be aware of these accounts until they appear on your credit report. It is important to monitor your credit reports. This will help you avoid collections account or minimize the damage they can do.
How do collections accounts affect your credit score?
If you have collection accounts this can have a negative impact on your credit score. A single collections account can cause your credit score to drop between 50-100 points. The actual decrease will depend on what your credit score was before the collections account was added. If your credit score is 770 a single collections account can cost you 40-70 points.
Should you pay off collections accounts?
Simply paying off a collections account in full may not give you better credit. Logic dictates that if the account is paid that should show that you are more credit worthy. Creditors do not see it that way though. You may not notice an increase in your credit score right away even when you pay.
There are other methods that you can use which may give you faster results. Before you pay this type of account know your options. A little knowledge can help you protect your credit score and remove collection accounts.
Do the new credit scoring models look at collections accounts?
The new credit scoring models used are different from what was used in the past. FICO 08 is the latest FICO credit scoring model. This model ignores any collection accounts on your report with an original balance which is below $100.
VantageScore 3.0 is another recent credit scoring model. This model ignores any collections that are lower than $250. Vanguard 3.0 also ignores any collection accounts that have been paid. Both scoring models have been updated to reflect changing standards and evolving concerns.
Is it possible to remove collections accounts from your credit?
Collections accounts can be removed from your credit report in a variety of ways. Some of the most effective methods include:
- Debt settlement negotiation
- Dispute the collection account dispute with the major credit agencies
- Collection deletion payment
- Debt validation request
- Original creditor 623 dispute
Collection accounts can damage your credit. In order to manage these accounts and maintain the highest credit score possible you need to understand the basics about this type of account. Having the answers to these common questions can mean a higher credit score. That can translate into lower interest rates and more credit opportunities.