If you’re getting calls from debt collectors, there are a few things you can do to fight back against their efforts. First, it’s important to know how debt collection affects your credit report. The impact of collections is largely dependent on the credit scoring model you use.
For example, if you have an account in collection, your score will be lower. However, if you pay off the account and have it removed from your credit report, the effect is much less significant. In addition, many credit scoring models will ignore collections that are under $100.
Depending on the model, this can be a positive or negative impact. One of the most popular scoring models is FICO(r) Score 8. The new version, FICO(r) Score 8, excludes debt collections under $100. This is great news for consumers. But before that change, 33 percent of medical debts sent to collectors were under $100. That means a debt of $200 or more can take a big hit to your credit score.
Similarly, VantageScore 4.0 ignores collections under $100. It also ignores medical debts that are directly reported by a medical facility. And if you have an account that was paid by an insurance company, it will be immediately removed from your credit report.
The best way to combat this is to contact your creditor and negotiate a payment arrangement. You can ask for a lower amount, but remember that they don’t have to accept it. Alternatively, you can ask them to sell the debt to a third party for a lower price. When you do this, your original creditor will not be able to collect the money.
Lastly, if you receive a bill that is incorrect, you can dispute it with your credit bureau. Debt collectors aren’t permitted to lie or harass you. If you’re receiving frequent phone calls, do not take them. Also, do not speak with your employer or family about your debt. These actions are red flags and can hurt your chances of getting approved for credit in the future.
While these steps will help minimize the impact of collection accounts on your credit score, they’re not enough to prevent them. Collections can also affect your other bills. So, it’s important to pay your bills as soon as you can.
Hopefully, you’ll be able to avoid debt collections in the first place. If that isn’t possible, you can try to settle the debt with your creditor. However, if you find that you can’t reach a settlement, consider contacting a consumer protection agency such as the Consumer Financial Protection Bureau. They have an excellent program that can assist you with this.
Having a collection account on your credit report can be a scary experience. Although it will lower your score, you can protect yourself by doing a little research on the matter. If you’re not sure how to handle the situation, consider hiring a credit counselor. The Federal Trade Commission website offers a wealth of information on credit counselors.