Having a collection item on your credit report will greatly impact your FICO score in a negative way. There are ways you can take control of the situation and remedy or remove the collection account altogether from your credit history. Here are a couple basics we’ll cover:
• What is a collection item?
• How can I fix a collection?
• What does a collection do to my FICO score?
Collections: What Are They?
When an account appears in “collections” on your credit report, this means a collection agency has purchased the past-due item from the creditor in an attempt to collect what is owed. Agencies buy them for pennies on the dollar, and they can find out your place of residence, your work, etc. A collection item will remain on your credit report for 7 years from the last 180-day late payment, even if it is eventually paid in full. Read any information the creditor and/or collection agency puts on your credit report very carefully.
Collections: How To Fix A Collection
If you have an overdue account, the collection agency will contact you and send a letter explaining the situation. Often, you have 30 days to dispute any of the information in the letter, so if there are errors or mistakes, it is important to read the letter immediately. It is also a good idea to keep notes and copies of all correspondence and communication between you and the creditor and/or collection agency. Since the creditor is the one with the negative mark on their accounting books, they are the best ones to negotiate with as they are the ones that can decide whether or not to notify the credit bureaus to remove the collection status from your credit report. Always get settlement agreements and negotiations in writing before you pay the debt. Remember that you also have several rights under the Fair Debt Collection Act. For instance, you can request that creditors not contact you anymore or do so only in writing.
Collections: How Do They Impact Your Credit?
Unfortunately, when an account is sent to collections, it will show up on your credit report for 7 years, even if the debt is paid. By paying the debt, the collection item will be noted as “paid in full” and your FICO score will no longer continue to be affected by the outstanding debt. After the debt is paid, you can continue to dispute it if you wish to do so. The best way to prevent collections is to stay on top of your bills, update your postal address and information when you move, and habitually track your credit report for any changes.
Buy Again After Collections
Buying a home again after collections is something that can be done, but you will want to work closely with a loan officer who can help you get approved. Buying after collections is possible, but there are widely different rules about how to deal with them between lenders. Find the right loan officer at the right lender if you want to buy again after having collections. Many different lenders are available with a wide range of loan programs for people who are in your exact situation.
The best way to find the right loan program is to submit your information below and let our lender network go to work finding you a lender who has a program that seems like the best fit for you. Getting approved for a loan can be as easy as that!
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