A collection agency is a company that attempts to collect an unpaid debt. Collection accounts on a credit report are considered a negative item, and will have a negative effect on your credit score.
Effects
A collection agency will report the collection account to the credit bureau. According to the FICO scoring model, how well you pay your debts accounts for 35 percent of your credit score. The appearance of a collection account on your credit report will drop your score because it represents an unpaid debt. How much of a drop depends upon the other factors present within the report.
Significance
A lowered credit score can cause lenders to deny your loan application or give you a higher interest rate if approved. In addition, some employers check your credit prior to employment and a lower credit score could eliminate you from consideration for that position.
Misconceptions
Collection accounts remain on your credit report for seven years. Paying it off won't remove it; instead, your credit report will list the account with a status of paid and a balance of zero. In exchange for payment, you can ask the collection agency to delete it, but they are not required to do so.
0 comments:
Post a Comment