If you’ve run into some bad luck fiance wise, you might have ended up with a collection on your credit report. If so, that’s never a good place to be. So, you might be wondering how many points does a collection drop your credit score. Read on for the answer.
How Many Points Does a Collection Drop Your Credit Score?
No one knows exactly how your FICO score is determined as the algorithms and credit scoring models are secret, but there is no getting around the fact that a collection is going to severely hurt your credit score.
If your credit reports and score are good, then the impact will be larger.
You should expect a 100 point drop for the first collection.
On the other hand, if your credit score isn’t great, a collection will not drop your score as much, but it will still have a big impact.
Either way, you can expect a credit score drop that will severely hurt your chances of obtaining credit in the future.
If you do get an auto loan or mortgage or even a credit card, you can expect to pay much higher interest rates.
You could even have a difficult time getting a job as studies show that 29 percent of employers check a prospective employee’s credit history before they hire them.
The theory is if you have bad credit or a lot of high credit card balances then you won’t be a reliable employee.
I’ve never understood that theory, but there it is.
So if you have collections on your credit report, what can you do about it?
Can You Remove Collections?
The answer is yes and no.
Collections can be reported for up to seven years even if you pay them off.
So, paying them off doesn’t really help in the sense the collection is still on your report and is used to help determine your credit score.
However, if the collection is incorrect then you can dispute it and have it removed.
Keep in mind, this is never easy.
You may also enjoy:
How to Remove Collection Accounts from Your Credit Report
One of the easiest ways to have an inaccurate collection removed is to use the services of a credit repair agency.
They can handle the entire process, but of course, they charge a fee to do so. The upside to using a service like this is they have the experience and know-how to help you.
The downside is you could pay them a good amount of money and then they can’t resolve the issue for you.
So you’re out a bunch of cash and still have the collections on your credit report.
The second way to go about this is to do it yourself.
- Get copies of your credit report from all three reporting agencies. You can get a free copy once a year.
- Determine if what they are reporting for this collection is accurate. Write down all the information, so you know the when, where, and how of the collection.
- If you find that it is inaccurate, then you can challenge it with the reporting agencies. They have thirty days to investigate and confirm the information they are reporting.
- If the creditor doesn’t confirm the information then the reporting agency will remove it within 45 days.
- If the debt being reported isn’t even yours, then use a dispute letter to have it removed from your report, but don’t pay this debt.
- If the debt is over seven years old and still on your report, you can request to have it removed.
If you have good credit and only had one issue, you can ask your creditor for a goodwill deletion.
Of course, you will need to pay the debt off first, but once you do, the creditor might remove the derogatory items from your report.
You may also enjoy:
Will Your Credit Score Increase if You Pay off a Collection?
You would think it would only make sense that once you paid off an old debt that your credit score would increase, but that’s not the case.
Even if the debt is paid off, it remains on your credit report for up to seven years.
It just sits there like a lump of coal as it causes your credit score to stink.
So, think twice before you decide to pay off old debts because even if you do, it won’t get you any love from the major credit bureaus.
Making a payment on an old debt can also reactivate it, and you might find yourself in hot water over a debt that had gone to the wayside.
To Sum it All Up:
The truth is, the credit industry is not your friend. Make one mistake and they will beat you over the head with it for years to come. The best way to deal with a collection is to never have one. Unfortunately, life gets in the way sometimes and your best intentions go down the drain. So, if you end up with a collection on your credit report, expect to see a 100 point drop.