Going from bad to worse – Collections are a curse!

What do you know about collections? I get a lot of questions like: How long can they stay on my credit report? What effect do they have on my credit score? What’s the best way for me to pay them off and get them out of my life?

Do you wonder about these things? A lot of folks do. Every day I get questions from our members about collections and how they affect their credit. Let’s see if I can give you some answers!

A collection takes place after we have been delinquent on a payment. That payment can be on a utility, a loan or a payment for other services where you may be billed later like a carpet cleaning. Technically, you can be late up to 89 days on your utilities like your water bill, heating bill, or even your phone or cellphone bill, even that invoice from the carpet cleaner. So long as you pay it by the 89th day, no one at the credit bureau needs to know about it. Sure, the water company might charge a late fee or the cellphone provider might temporarily cancel your internet service, but it will not appear on your credit report and cost you a reduction in your credit or “FICO” score.

But, if you allow that bill to go unpaid that additional day so that is it 90 days late, your credit score will suffer. As a general rule, most businesses turn unpaid debt that is 90 days old to their internal collection departments or they may sell unpaid debt to a collection agency for further collection. What that means to you is a severe beating of your credit score. If you had an excellent score, it is now just okay. If you had a good score, your score has dropped significantly. An unpaid collection on your credit has the same power on your score the first day as it does seven years later when it expires and drops off your report! Unpaid collections drag your score down and prevent you from accessing future credit on good terms and rates.

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