When you miss payments on accounts in your name, a creditor might report your delinquency after a couple of months. The credit might begin collections or debt selling actions to a company that specializes in the area if that delinquency goes unpaid.
Collections efforts can be quite disruptive. For many, they can ruin that day to day experience of life. Of course, the impact that they can have on your credit score and future financial decisions may be the most common.
How Collections Affect Credit Scores
If you are making a big purchase, such as a new home, you might worry about collections. Yes, collections might sit on your credit score for seven years, though how does it impact your credit score overall?
Collections actions can take credit from great to poor very quickly. The impact tends to be much worse if you have very few accounts and new credit history. On the good side, there are scoring models out there that pay more attention to owed balanced rather than the presence of a derogatory mark. If you have less than $100 on your account total balance FICO 8 and FICO 9 scoring models could ignore collections that aren’t currently paid.
VantageScore 3.0, VantageScore 4.0, and FICO 9, are a few scoring models that might not count it against you if you pay off the account that went into collections.
However, when it comes to balances that exceed $100, especially if you do not pay those balances off, they will have a far worse impact on your credit score when the FICO 8 model is used. These scoring models, unfortunately, are the ones used by the majority of financial institutions. With these scoring models, you might see a pretty significant drop in your credit score.
Removing Collections From Your Credit Report
When it comes to removing a collections mark from your credit score, you might need to think about how it got there in the first place. Did the lender make a mistake? Was there identity theft involved?
Delinquencies are often reported straight away so that people are scared into paying them. However, there are times when you can negotiate debt deletes by paying off the debt or providing a settlement.
Sometimes it can take years for collections accounts to get off your credit report. The start of a seven-year credit timespan is when the first date of the delinquency starts. Once this time passes through, you’ll want to follow up with credit bureaus to see if it falls off your report.
If the debt is not yours, you can dispute it. If you can prove that you didn’t open an account, you might be able to clear your name.
Protecting Your Credit Score
There are plenty of ways to protect your credit score, including monitoring your credit report, freezing your credit, and restricting access. However, many people come to us with the intention of adding accounts.
Make sure to get in contact with us if you have any questions regarding purchasing authorized user tradelines to improve your credit score.