A Collection Account Reduced My Score
I’ve heard this line a million times: “A collection account reduced my score.”
But it doesn’t really come as a surprise. Most people don’t seem to understand the severity of a collection account, and the effect it can have on one’s credit score. And individuals often find out the hard way, while applying for a mortgage or a car lease, usually at the last minute.
Typically, a consumer will apply for a large loan and discover that a collection account showing up on their credit report has dropped their credit score to the point where they no longer qualify.
Obviously this is unwelcome news, but it illustrates why you should keep an eye on your credit score, especially before applying for anything significant.
It’s important to understand that a collection account can reduce your credit score by 50-100 points or more. The reason a collection can inflict so much damage relates to the fact that credit scoring is most affected by payment history (how a Fico score is determined).
So if you don’t make payments on time, your score will surely drop.
And if you fail to make payments month after month to the point where the original creditor releases your debt to a collection agency (charge-off), don’t be surprised if your credit score gets whacked even more, dropping from what is considered a good credit score to a bad credit score overnight.
To truly understand the impact of a collection account on your credit score, read more about what a collection account is. Once you’ve got a good understanding of a collection account, it’ll make a lot more sense why a seemingly small offense can reduce your credit score so significantly.
You should do everything in your power to avoid allowing an account to go into collection status. Even if you pay it off, the negative event will remain on your credit report for seven years from the date of first offense.
And dealing with debt collectors and disputing a collection account can be a time-consuming, losing endeavor, so stay on top of your payments!