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How Debts in Collection Can Seriously Affect Credit

If you have failed to keep commitments to repaying lenders for a significant period of time, your chances of a debt being passed to recovery agencies increases. And, put simply, debts in collection can seriously affect credit.

How Debts in Collection Can Seriously Affect Credit

Debts in collection can have a serious impact on your potential to obtain credit in future, and may even contribute to an employer’s decision not to hire you. As lenders generally attempt to retrieve debts in-house prior to selling debt to collection agencies, there is usually a way to prevent such measures. However, if you are past this point, general assistance with debt collectors in the United States, or Sheriff Officer Advice in Scotland, will help you to approach the process of dealing with debts in collection in the right way.

Related: What If I Had a Zero Credit Score?

What are debts in collection?

Collections processes generally begin when a lender has exhausted efforts to contact an individual in order to receive repayments for a debt. When the lender writes the debt off as a loss, they will sell it to companies for a fraction of the amount owed. These collection agencies or departments will then chase you for the debt. They can do this by sending letters, making phone calls and approaching you at your home or at work.

While there are existing laws regulating debt collection, these do frequently change.

debts in collection can seriously affect credit

How do debts in collection affect credit?

Put simply, your credit score can potentially suffer pretty big. Debts in collection can seriously affect credit. But, the effect debts in collection have will vary on the amount or amounts outstanding, your history with accruing debt, and your traceability. Perhaps the most worrying factor involved here is that, the better your credit score is when your debt goes into collection, the more significant the change may be.

The way this works is that any account in collections is noted on your credit report, which is available to any lenders or third party authorized to view your report. As responsible lenders will not approve credit to those they consider as significant risks, information pertaining to a delinquent debt can be enough to contribute to their decision to reject a potential client.

This does also depend on the type of debt and the amount owed. For example, small medical bills may not affect your credit score the same way as larger balances for loans or credit cards.

How to approach debts in collections

If you recognize the debt as legitimate, contact the collection company or agency and find out what you can do to work towards paying the debt. There are often ways of making smaller payments or negotiating a way to pay off any outstanding balance as a lump sum smaller than the total amount owed. Get advice from specialists used to dealing with debt, and work out the best way to address your specific circumstances.

Related: 9 Tips to Successfully Negotiate With Debt Collectors

For the future

Clearing debts may take some time, but in the future you will certainly benefit from the small steps you take today. Making repayments frequently and looking after your finances from now on will greatly improve your chances of obtaining credit in the future, which may mean more security and prospects later in life.

Improving your credit score can be achieved by demonstrating a responsible attitude to debt, and by understanding just how important it is to handle your finances in the right way.

Debts in collection can seriously affect credit. Are you ready to take care of your debts??


AUTHOR Derek Sall

Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.

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