The Truth about Collection Accounts
You may have gotten behind on payments, and maybe a bill was sent to collections. It could have been a $100 medical bill or a $5,000 credit card account. Believe it or not, each does the same amount of damage—dropping your credit scores by as much as 100 points.
So, let’s say that an account goes to collections, and you pay it off, but it’s already done the damage to your FICO scores. You’d think the fact that you paid it off would raise your scores back up, right? Wrong. Your credit rating and scores will not increase even though your credit report shows you’ve paid the collection in full and have a $0 balance. Once the collection account has hit your credit report, it’s locked in as part of your credit history. Paying it off doesn’t change that. Even if it’s a small collections account, it doesn’t matter. That small debt can sink you just as much as a late mortgage or car payment.
The solution, obviously, is to prevent collections from happening in the first place. You have to protect your credit scores. Start by checking your scores on a regular basis. Go to www.myfico.com/12 today. Collections show up in the Public Records section. This is the bottom line: if a creditor is threatening to send you to collections, you’d better pay attention. I had a client who lived in an apartment with two roommates. They were all on the lease. When they moved out, the apartment complex charged them $400 in damages. Two of them sent in their portion, but the third woman didn’t pay. Well, guess what happened. The assessment showed up as a collection on the credit reports of all three roommates. My client’s score was lowered more than 100 points! Granted, it wasn’t her bill to pay. But was it worth the damage done to her credit score, which took years to recover from?
So what else appears in the Public Records section of your credit report?
· Federal and state tax liens (released and not released)
· Judgments and satisfied judgments
· Bankruptcy If you have any of these on your credit report, you can bet it’s lower than average.
Again, the bottom line is that you can’t fix a collection account once it appears on your credit report. The best thing to do is pay it off before it gets to that point.
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