Dealing With Collections and Your Credit Score – Fix Them Fast
It’s no secret that your credit score is important. If you want a good home loan, car loan, credit card, or even a good job, you need your score to be high. If you don’t check it often, you’re taking a big risk; your creditors will know more about yourself than you do, and you could be in for a surprise loan denial if you don’t know where you stand. The risk is bigger if you aren’t financially responsible. Let an account go to collections, and your score will suffer.
Each of your creditors will have different payment policies. Some offer you a grace period to help you avoid late fees and penalties, others require payment on or before the due date and no later. No matter the situation, your best bet is always to pay your bills in full and on time. While it may take creditors a while to report positive activity on your account, such as paying off your debt, they are especially quick to report any late or missed payments. Your credit score will be affected immediately.
If you let an account default and avoid your creditor’s attempts to collect, their next option is to turn the account over to collections. Just like you, they want to avoid this at all costs. It means they will not receive the full amount that you owe; the collections agency will take a percentage for their fee, generally 33-50%. But when you’ve reached this point, collecting at least part of the amount owed is better than collecting nothing at all.
Such activity can stay on your credit report for up to 7 years. While time will decrease the weight it has on your score, this little note still has a negative connotation for potential lenders and creditors. When you apply for new credit or a new loan, they’ll see that you were reluctant to stay on top of your payments in the past. Few lenders will want to take the risk of accepting you. They’ll be wary that they won’t get their investment back either.
You can always check your credit report and score for free, so take advantage of it as often as you deem necessary. It’s recommended to check your standings at least once a year, but of course more is always better. This way you can see right away how any late or missed payments have affected your credit score and how in danger you are of being sent to collections. This is not something to brush off. Even though the creditor won’t get the full amount owed, you do not have the last laugh. You still have to pay the full amount, and it’s your credit score that will take a huge hit. Know where you stand and it will be easier to maintain a higher score and avoid negative pitfalls.