Whenever you miss payments on your accounts, creditors might report your delinquency after a few months. A creditor will likely begin debt selling or collection actions with a company that specializes in the delinquency are that goes unpaid.
Collections can be very disruptive. In many cases, they can throw a wrench in the day to day life experience. However, the significant impact they might have on your future financial decisions and credit score is the most common.
The Impact of Collections On Credit Scores
If you’re making a large purchase, like a new home, collections might be something to worry about. Collections may hang onto your credit score for up to seven years, though the question is,
How can it impact your overall credit score?
Actions from collections often take credit from wonderful to poor very quickly. The impact can be far worse for those that have few accounts or newer credit history. On the positive side, scoring models are out there that pay closer attention to the balance owed instead of the derogatory marks. For those that have fewer than $100 on their total account balance, FICO 8 and FICO 9 scoring models might ignore collections that are not paid currently.
VantageScore 3.0, VantageScore 4.0, and FICO 9, are some scoring models that may not count collections against you if you pay off the accounts in collections.
When it comes to balances greater than $100, however, especially balances that aren’t paid off, they might have a far worse impact on your credit score when you use the FICO 8 model. Unfortunately, these scoring models are those used by the majority of financial institutions. You might see a pretty significant drop in your credit score with these scoring models.
Removing Collections From Your Credit Report
If you’re looking to remove collections marks from your credit score, you may need to consider how it ended up there to start. Was there identity theft involved? Did the lender make a mistake?
Agencies often report delinquencies right off the bat so that people get scared into paying them. Of course, there are plenty of times when you are able to negotiate debt deletes by simply providing a settlement or paying them off.
It may take years for collections accounts to leave your credit report. The first date of the delinquency begins at the start of a seven-year credit timespan. Once seven years pass, you’ll want to follow up with credit bureaus to make sure the collections are gone.
You can dispute a debt that isn’t yours. To do so, you must prove that you didn’t open that account.
Protect Your Credit Score
There are several ways to protect your credit score, including freezing your credit, monitoring your credit report, or restricting access. Of course, there are plenty of people that come to us with the intention of adding accounts.